http://wallstreetonparade.com/2014/07/senate-renaissance-hed...
I am sure there is more like this waiting to be uncovered.
If you have your ear to the ground you can find many proprietary trading firms which have similar or even superior returns. It's much harder to find a fund deploying similar strategies at the same capacity.
As a corollary, every single new hire at the firm is expensive in more than the traditional ways. They only have so much room in Medallion, and so they tend to be both extremely secretive and extremely protective when hiring. They've lessened up on that somewhat recently, but it's still there.
I think it's fair to say they were generally recruited via social networks. They knew what RenTec was, they knew someone who worked there (maybe an old grad school colleague or a former student), and when they reached out, RenTec already knew who they were. I don't know of anyone who went there who didn't already have a reputation in academia.
So contrary to astazangasta's original claims, they do seem to me to have something of a monopoly on brains. There are other smart people at other firms, but I don't know of any other place that has such a concentration. (Aside from Jeff Dean's office, I suppose. ;)
I don't work in trading anymore, so I'm not talking my book here. Trading is zero-sum at a transactional level, but has knock on benefits beyond profit and loss:
-Making it easy for companies to raise capital through IPOs or offerings (without a robust secondary market for securities, people will be less likely to invest)
-In commodities: Letting businesses bear the risks they want and insure against the ones that aren't their core business
-Liquid markets let real people trade in and out of investments without friction at fair prices
-Providing accurate price signals to other businesses and the broader economy
So I don't think I was saving the whales, but I don't think it was wasteful, either.
Also, as a mildly clever OCD math guy who's semi-good at writing fast C++ code, I don't think I would have been curing cancer anyway.
ETA: At least in the case of HFT, if you accept that markets need intermediaries of some sort, it seems more efficient to have a few dozen tech/math guys do the same job thousands of guys in mesh vests were doing years ago, and cheaper.
I mean there are computational cancer models that need to be written and optimized.
But character references aside, the claim that Medallion is skimming the other funds just doesn't add up: Medallion is at capacity and has been for at least a decade. It's been producing at least $3B / year in profits during that time, and that's redistributed to RenTec employees as cashflow, either as bonus (from their infamous 5/45) or as profits returned to the Medallion investors. So, we're talking about minimum $30B spun out in cash over the past decade. That's basically the total AUM of their other funds.
I think it's a fair guess that they are just better at playing the game than most. The people I've known from there are all very good, and alums have included people like Lenny Baum (aka hidden Markov Baum-Welch) and Elwyn Berlekamp. They also were almost certainly the first or second (Thorp knew) fund to truly figure out optimal bet sizing via Berlekamp's association with Kelley. Mercer's work in speech recognition at IBM is also evocative; speech recognition has been around for a long time, but it's always been really difficult and inherently a time series problem, like markets. Lots of Mercer's old team got pulled into Rentech looking at different kinds of time series.
Tax optimization is just another part of the game. I know a bunch of guys who renounced their US citizenship and moved to Bermuda to run their fund; 36% compounds pretty quickly.
The story about Simons hiring essentially the whole IBM Speech Recognition group is true though. I have a neighbor who worked there in the early 90s. He's got a paper from that period with 4 other co-workers, and he's the only one of them who didn't end up at RenTec.
> the suggestion that unlike the other outperforming hedge funds that turned out to just be insider trading, this one is real and they are just that smart.
They probably aren't just smart, they also have some process that isn't just about being clever. They optimize their execution, they make sure their research platform is top quality, they make sure they have the cheapest funding, they make sure people want to stay and work there, they keep an eye on what other firms are doing, and so on.
The thing about the investment business is there's a lot of focus on being smart, to the detriment of everything else that you need.
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> The thing about the investment business is there's a lot of focus on being smart, to the detriment of everything else that you need.
Yes, precisely. RenTech's research platform is key. All hedge funds recognize that data is integral to their success. But most funds drown in the amount of data they try to process. RenTech does not. A large number of their research team works directly on innovating data processing, not just strategy design and development.