Renaissance’s Medallion hiked investment caps 50 percent after Trump’s election | Hacker News Reader

Renaissance’s Medallion hiked investment caps 50 percent after Trump’s election

bloomberg.com

52 pointschampagnepapi23 comments

It's interesting that the Medallion fund generated an 11.6 percent return during the first six months of this year, lower than the gains of 21 percent and 18 percent during the first halves of 2016 and 2015, respectively. It's also only marginally better than what a passive investment in the SP500 during that same period would have returned.

That makes sense. The point of investing is not to beat the market in any given year, but to minimize losses. The market in general is doing fantastic right now, so it's hard to beat even for Rennaisance. But when the downturn comes you can bet they'll be ahead of the game.

What makes you confident in this fund in particular vs the rest given that in aggregate they can't beat the market? The history of past returns I assume?

I don't have a source on this but from what I read they returned ~80% in '09.

From the research I've done on them, they generally make tons of very small bets on assets they think are mispriced. Generally speaking, when volatility goes dramatically up is when more assets are mispriced thus leading to larger gains for them. However, we've seen historically low volatility so it makes sense that they're not returning as much right now.

The article from a year ago, summarizing Millenium's history and culture, was a fascinating read as well. It certainly sounds like a place packed with geniuses, but I can't help but notice that it also sounds eerily similar to LTCM.

https://www.bloomberg.com/news/articles/2016-11-21/how-renai...

https://en.wikipedia.org/wiki/When_Genius_Failed

Considering how well-connected they probably are I bet they can augment their genius with some insider knowledge from time to time.

Some years ago I knew some Wall Street guys and they all pretty much said that the successful traders have information that's not available to the rest. Some get greedy and get caught but the others are just a little more subtle.

Impossible to know as an outsider, but it's interesting to me that Simons tried pretty hard to isolate Renaissance from Wall Street & other hedge funds. He hired people out of academia, saddled them with an extremely onerous non-compete agreement, and was leery of Wall St. traders because he figured if they left their current fund, they'd leave him, too, once they learned the secret sauce. And he put the headquarters in Long Island, away from the loci of Greenwich and Wall St.

I think the main points to consider would be: how much leverage do they use, and how quickly can they get out of their positions?

On the latter, we know it's not comparable to LTCM because a long-held position for Rennaisance is like 8 seconds (so I heard).

On the former, I don't know. But LTCM had to use huge leverage to achieve their returns because their bets were ones with very small profit margins but that they were extremely confident in.

RenTech is unparalleled and Medallion has proven itself for decades.

This interview with Jim Simons is fantastic: https://youtu.be/QNznD9hMEh0

Very interesting guy! They should show this to every high school in the USA. Teacher: "See this, that's why you need to learn math!"

Jim founded an organization, Math for America, to help: http://www.mathforamerica.org/about/board/james-simons

(This story appears to have nothing to do with Trump, despite the headline.)

It's amazing how a fund's focus switches from when it makes money collecting management fees from other people's money to when it only invests the partners capital:)

There aren't too many funds out there who actively give back capital on a quarterly basis to investors to ensure they aren't over capacity, and the ones you do hear about are usually shutting down a fund or kicking out the outside money all together.

> The firm told staff that they would be allowed to increase their Medallion stakes by at least 50 percent. The catch: they had just weeks to come up with the money.

This seems a bit punitive to the "rank and file" employees as if RenTech is like any other fund then...

- most of the executives probably have orders of magnitude more money in the fund already so a flat 50% increase benefits them alot more.

- its much easier for someone will 100's of millions in existing assets to get a loan in a week than someone with single digit millions or less.

As a side note, the link in the article was posted before but its still a terrific article if you want a look at RenTech

https://www.bloomberg.com/news/articles/2016-11-21/how-renai...

Just for fun RenTech just filed their 13F here are positions they sold or reduced:

AMD US (Advanced Micro Devices Inc), CVS US (CVS Health Corp), PCLN US (Priceline Group Inc/The), TEVA IT (Teva Pharmaceutical Industries Ltd), TSLA US (Tesla Inc), AET US (Aetna Inc), CMCSA US (Comcast Corp), FB US (Facebook Inc), MRK US (Merck & Co Inc), PX US (Praxair Inc),

and positions they added:

ADSK US (Autodesk Inc), AIG US (American International Group Inc), MCK US (McKesson Corp), PFE US (Pfizer Inc), WDAY US (Workday Inc), BMY US (Bristol-Myers Squibb Co), CL US (Colgate-Palmolive Co), DPZ US (Domino's Pizza Inc), EA US (Electronic Arts Inc), NVDA US (NVIDIA Corp)

Top holdings: NetEase Inc.-ADR: up 456,300 shares, to 2.73 million valued at $819.5 million

Johnson & Johnson: down 970,500, to 6.13 million valued at $811.2 million

Bristol-Myers: up 7.02 million, to 13.5 million valued at $751.6 million

Gilead Sciences Inc.: up 2.7 million, to 10.4 million valued at $736.7 million

Colgate: up 2.9 million, to 9.75 million valued at $723 million

The hedge fund manager's disclosed holdings rose 9.5 percent in value in the second quarter to $78.3 billion. The Standard & Poor's 500 index advanced 2.6 percent.

Interesting. I wonder what (if anything) the 13F means for a company like RenTech. Who knows how long they hold positions for (minute or less, or days and beyond), perhaps this could have just been a snapshot of an instant, or no? I ask this, since humans apparently do not trade there, they are not like a more traditional fund like Appaloosa, where humans decide when to get in/out of a position.

RenTech is not a fast-twitch fund, they generally hold their positions for a significant period of time.

Even if you were to subscribe to that notion, it's still on a quarter lag.

Your write ups are always spot on Chris! I always look forward to your response in these finance related discussions.

Also Medallion has performance fees of 44% compared to the typical 20% of other funds. That's pretty crazy

And yet, I have a hard time imagining any RenTech employee that didn't just join having a hard time coming up with 50% of what they had invested in Medallion. I mean, it's about what Medallion made them last year?

Also, banks are apparently notoriously unafraid of taking the risk that RenTech would lose money. Source: my favorite Matt Levine piece: https://www.bloomberg.com/view/articles/2014-07-22/senate-li...

you can't be sure of much from their 13-Fs. Derivatives, swaps, forex, debt, cash, commodities, and shorts aren't reported and since you don't know how much leverage they use (reputed to be "a lot") you don't know how important those billions in equities are - they might be the hedges and the actual exposure is negative and the alpha is in the term structure of some derivative.

of course, you did say 'just for fun' since it seems you know this stuff :)

13F filings are at best deceptive for a fund like medallion. That is, for any fund that is not primarily a net long equity fund, a 13F filing shows only a small subset of their position.

Medallion could hold any number of other positions in the form of derivatives etc. That are paired with or set against these common stock positions.

If you read or listen to Jim Simons he makes it pretty clear that Renaissance trades on relationships or trends and isn't particularly in the business of betting which individual stock is going to perform better than its peer group.

I don't think 13F filings are useful to understand their strategies.

Does anyone understand how too much money in the fund can lead to diminishing returns?

Investment opportunities of any given quality are not unlimited.

Eventually you go from playing the market to BEING the market.

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