Here's a couple of stand out items I cherry picked for no particular reason what-so-ever...
According to the Center for Responsive Politics, Renaissance is the top financial firm contributing to federal campaigns in the 2016 election cycle, donating $33,108,000 by July.[33] By comparison, over that same period sixth ranked Soros Fund Management has contributed $13,238,551.[33]
On 25 September 2008, Renaissance wrote a comment letter to the Securities and Exchange Commission, discouraging them from implementing a rule change that would have permitted the public to access information regarding institutional investors' short positions, as they can currently do with long positions. The company cited a number of reasons for this, including the fact that "institutional investors may alter their trading activity to avoid public disclosure".[32]
By the law of the large numbers, some funds will be a success for quite some time. Just as some people do win the lottery.
I don't think it's surprising that a couple of funds have a great track history even if the game is just pure luck.
However, they are also at least generally, not making traditional 'investing' decisions. They are making statistical arbitrage bets - they are looking for instances where mispricing exists in the market, and they can make a guaranteed (statistically) profit by buying and selling statistically equivalent securities at different prices. The classical simple example is pairs trading: you notice that coke is always worth 10% more than pepsi, so when you see coke trading at 15% more than pepsi, you short coke and buy pepsi, betting that the gap will close to its traditional norm. Now, what they are doing is obviously substantially more complex and rigorous than that, but that is its flavor.
You can guess a coin flip 5 times in a row. A few people out of a hundred will do so.
But you cannot get significantly over 50% correct on millions of coin flips. That's not luck.
Your mistake is treating each trade as an independent event. But in reality all those trades may share a single methodology which can be invalidated by a single unprecedented market change. Yeah, a fund is a perennial winner until it's not. You can call it being unlucky or you can say they went from being smart to stupid. It doesn't really matter what you call it, the point is past performance is no guarantee of future returns.
They largely are.
The people who fall under your criticism are the old school stock pickers. For instance, people who've grown up during the long decline of inflation and rates might have hit a wall over the last few years. A lot of those guys were essentially riding the same wave over multiple trades.
But the kind of trading done in stat arb is largely independent of such long term trends. They change around their positions so often that there's hardly any regime that they are biased towards. High vol? Been long and short. Rates going up/down? Been long and short. Economy? Been long and short.
Sure, there might be some hidden regime that we've yet to hear about, that's possible. But there's quite a difference between the quantitatively astute funds and the other long-lived ones.
But you can get determine a likelihood that they are lucky by monitoring their performance over a long time / lot of games. It's just that if you are evaluating a whole lot of people looking for a rare skillful person, you need a whole lot more time/games to be sure they aren't lucky than if you just had one person to evaluate.
"How do you distinguish between pure luck, actual skills, and illegal manipulation?"
Related: one can be highly skilled and still lose to someone who is highly lucky.
Suppose there are 10 funds with the track record of RenTech. In 10 years, you wouldn't expect them all to be as stellar.
There are models to model the risks and the potential outcomes.
At this point, because of Renaissance Technologies' success, their fees will likely offset the gains they'll net you.
I think recently their performance slipped a bit and they started taking money again, but the above point was true for a long time.
Renaissance is a company which manages hedge funds. They're famous because their main fund, Medallion, has done exceptionally well. The only investors in Medallion are Renaissance employees; it's capacity is limited, so that even employees can't generally invest as much as they'd like. Renaissance also manages several other hedge funds, which have much higher capacity, and have both employee and outside investors.
Unless there's a version of the EMH that doesn't believe in the speed of light.
Risky, but this is why people try to beat the market. This is the allure of gambling.