Renaissance Technologies
en.wikipedia.org
en.wikipedia.org
1. S&P 500 returns are log-normally distributed with a log-return of 10% and volatility of 10% 2. RenTec made a mean annualized return of 71.9% over 20 years 3. The returns of RenTec are independent from year to year
We get a P<1.64E-14. Therefore, I think we all can agree that we can reject the null hypothesis of RenTec having no alpha.
And before someone says that it's a scam, there's no outside investors in the Medallion fund anymore, so if it is a scam, they would only be scamming their own employees. And if that was the case, I think we would know.
Who has audited these numbers and what is your source specifically?
I‘m aware of Rentec for many years and also awed by the numbers but I‘ve always wondered where do people actually get them?
In particular: RenTech likes to keep a handle on this publicity for the purposes of courting extremely good talent from academia and industry. That's the only reason the Medallion returns are ever intentionally publicized. Anyone investing in RenTech's other funds knows full well they're not getting the alpha powering Medallion's returns.
Simons would probably have preferred to stay entirely under the radar, but the cat's out of the bag already and has been for decades. The most successful hedge funds (like the Princeton Alpha offshoots) don't court publicity because they don't need to pool risk with outside investors. They're not even hedge funds in the common sense of the term; they're proprietary trading firms run on employee and partner capital. Medallion can be thought of a prop shop within a hedge fund in that way.
Also, what Princeton Alpha offshoots? IIRC, Princeton Alpha was a PDT spinoff that closed due to poor performance. Maybe you mean Princeton/Newport offshoots?
The "it's a scam" theory that I heard had nothing to do with it being a Ponzi scheme, instead it was about laundering high-tax income into low-tax capital gains while maintaining a plausibly deniable investment cover story. It didn't have to beat the market, it just had to beat regulators.
I have nowhere near enough domain competence to comment on the plausibility of that scenario, other than to say that I suspect if it were that easy everyone would be doing it, so on those grounds alone I suspect the conspiracy theory I heard was incorrect. Someone more invested in the idea that it's a conspiracy would likely just argue that it isn't easy to be good at this or that there are economies of scale, so only one dominant player. Shrug.
There are public swap-based ETFs (in Canada) formulated around this concept:
That sounds like misdirection. It's very common for hedge funds to use tons of leverage. It's not like getting this level of leverage is an unsolved problem.
On the other hand reducing your tax rate from 37% to 20% increases your returns by 27%. Even that would be valuable, but the real number is probably even more than 27%.
A podcast interview with the author:
* https://awealthofcommonsense.com/2019/11/talk-your-book-greg...
* https://awealthofcommonsense.com/2019/11/non-intuitive-lesso...
An example of such information would be information gathered from insiders at other corporations or industrial espionage.
It's more likely, in my view, that they've created a world-class industrial espionage outfit than that they've "solved the market" for decades where virtually everyone else has failed.
On the other hand, if they really are cheating, I'm not sure why the US government (who doubtless has penetrated them with their own spies) has let them continue operating for all these years.
Intel analysis is more CIA/DIA.
My understanding is that this was generally true in the 1960s-70s as well. E.g., MINARET:
Think about the quality between Google Maps and Apple Maps when Apple maps was first launched. Apple even hired a bunch of ex-Google Maps employees to improve their product, so it likely was using similar algorithms, but with worse data. Apple though had the luxury of gathering every iPhone user's location data though to build up their dataset. In Rentech's case, a competing hedge fund would not only have to build out the team and infrastructure, they would only likely lose a lot of money at first to gather enough data to have a similar edge. There were a lot of HFT firms like Jump, Citadel's unit, Getco that generated very impressive risk-adjusted returns for a while, but I don't believe it was close to Rentech in terms of capital capacity and number of years.
You can't. Renaissance only hire ~100-150 people, their strategy is very much based on only hiring the best of the best. This is nothing like tech. Tech firms employ thousands of engineers, you have to employ average people if your demand is this high.
Jump and Citadel aren't trying to do what RenTech does either (it is very hard and very risky). They do a lot of HFT, afaik Jump is just a market maker, so they are more like tech companies in that they do not need geniuses. They just need competent bodies at scale who won't blow up the company.
My best guess is that it's a combination of luck, skill, and hindsight bias. Rentech probably had (has?) an edge. They were also partly lucky: in investment, you can do everything right and still lose money. There were also many other players: had LTCM not blown themselves up, we might be marvelling at their investment prowess now.
I’ll link to the Wikipedia page below for the math, but these figures would highly suggest that their returns are much less likely the result of luck, and more likely the result of some edge/alpha generation.
They're famous because Medallion is the best performing quant fund. Even if quant funds were just chumps tossing coins, if you pick the best of a number of them, you'll get something that looks good.
Now that maths still doesn't stack up that they were just lucky - they probably had skill too. But I think it's more likely that they had a modest edge and were lucky than it is that they had a large edge and got an average result.
Luck means making big returns, skill means doing it with low volatility and high Sharpe.
For example, you might make a (successful) bet that works only in a low-volatility environment; if it works, your ex post Sharpe ratio will look ingenious.
But, if a given fund (Medallion in this case) is able to thrive/survive during the 1998 Russian financial crisis (which felled LTCM), the 2000-2004 tech bubble bursting, the 2007 quant quake, the 2008 financial crisis, and 2010 flash crash, it would seem to suggest that their statistical arbitrage strategy performs well in all manner of environments.
After their very hefty 5/40 fees, their worst year between 2001 and 2013 was a 21% gain [1].
I understand that there are all manner of epistemic and mathematical problems that prevent us ever from completely disentangling luck and skill, but a conceptual framework like "The Superinvestors of Graham and Doddsville" would seem to apply here. I.e., after a long period of consistent overperformance, the case for skill starts to look much more likely.
There's no need for the aggressive tone.
> Sharpe isn’t changed by leveraging.
Indeed, volatility is, however.
https://www.lesswrong.com/posts/dC7mP5nSwvpL65Qu5/why-the-ta...
This is nonsense. Rentech makes 1000s+ of transactions per day across numerous asset classes. It is 99% skill. It’s black box automated.
So yes to us little people it is insider trading. But I’m 99% sure it is real alpha at the core.
We don’t live in a world of wizards. When impossible feats are delivered on schedule for years without others figuring out is a hint that something is up.
Someday, we’ll learn about whatever combination of corruption, grift or other bullshit that was lurking behind the curtain.
There are other possibilities. For example shifting profitable trades that occurred in their external funds to their internal funds. In which case it is partly a 'scam' and they would not be scamming their own employees.
The probability of my particular shuffled card deck is around 1E-68: vanishingly less likely. Therefore I think we can all agree we can reject the null hypothesis that my card deck was obtained at random. /s
Highly unlikely things happen all the time. Their occurrence should not be ascribed to alpha due to occurrence. The probability of occurrence due to occurrence is of course 1.
Moreover, I don’t think you or anyone else actually applies your logic in your own life. If you did, you would be dead because of your disbelief in reality. For example, you migh conclude that eating is unnecessary, because the people who starved to death were just unlucky and that in fact, there’s been no “proof” that people need food at all. Or even proof that people exist at all!
I recently graduated from Stony Brook University where Jim Simons chaired the math department in the 1960s. He left to start Renaissance Technologies which is located 1 mile down the street from campus. Their influence is everywhere. We have a Simons Center for Geometry and Physics ($150m building). I take classes in Frey Hall (Robert Frey used be managing director at Rentec). Our med school is literally the "Renaissance School of Medicine." Our athletic facility is the Walter J. Hawrys Campus Recreation & Wellness Center (named after Jim's father in law). etc. etc.
Children of Renaissance employees come to campus on weekends to train for USAMO and play chess. I met Jim a couple of times at alumni events and what stood out is how humble and normal and down to earth he seemed. He is also a chain smoker and was lighting up indoors(!) but of course no one can say a word to him lol. He's been making >$1 billion a year for like the past 20 years. To put it in perspective: an average code monkey like me making $250k at a FAANG would have to work for FOUR THOUSAND YEARS to make how much he makes in a year. It's unreal.
...look at that tasteful off-white coloring, the thickness of it. Oh my god -- it even has a water mark.
There is no fraud at RenTec, and there is nothing magical about what they do. It's simply an amazing technical and scientific organization, operating with almost unthinkable efficiency and scale.
I haven't read the book, but I'm pretty sure this isn't in it: I've been told by reliable sources that if you pick any one strategy (however you are able to separate/define that) from the Medallion portfolio and it will not be individually remarkable--probably less than a 1.0 Sharpe (net of trading costs, gross of fees). There are countless hedge funds with equally performant models and sub-strategies.
What makes RenTec different is their ability to generate orthogonal strategies at a remarkable scale. They generate more ideas with less philosophical and empirical overlap than anyone else, by a wide margin. The software and theory required to do this for a fund as large as Medallion is absolutely as rare and valuable as their returns have proven.
Wrote more about it here: https://www.bridgealternatives.com/medallion-isnt-magic-prob...
Part 1: Mathematics - https://www.youtube.com/watch?v=HVqxs0YBp4g
Part 2: Finance - https://www.youtube.com/watch?v=srbQzrtfEvY
Part 3: Philanthropy - https://www.youtube.com/watch?v=w8o-qC8E5ic
We're hurtling at an accelerating rate to ecological ruin, with millions (hundreds of millions?) of deaths a plausible outcome in the next 100 years, not to mention a fall in the standard of living for basically everyone, and our best and brightest are doing the Manhattan Project of cash.
As a stupid person, I can't do much other than shrug - hell, I can't even say I wouldn't do the same as these brain-genius PhDs if I had their capabilities. But it still kinda sucks, is all.
I do object to your phrasing. Quantitative finance isn't hacking a casino. It does generate actual value. The problem is that finance is one of the few fields where you can expect to be rewarded in proportion to the value you generate because the amount of value you generate is easy to measure. Cue all the smart, realistic people rushing into finance instead of having a larger impact for peanuts doing fundamental science or something.
The "hacking a casino" thing I'll defend, though: to the extent that getting better at gambling games and finance both can involve prediction, probabilities, data collection, and the like, I don't see how the analogy fails on anything but its crudeness, which I'll happily grant (while also saying I was going for a chuckle with it). I didn't mean to imply that getting good at either is something to be embarrassed about, only that it feels a little ... maybe "small", next to other concerns. I think that superlatively intelligent people do have god-given opportunities the rest of us don't have, and that while they're free to do as they please, the rest of us sometimes hope they'll use them wisely (and, selfishly in this case, to our benefit in some small way).
I'll also say that I meant "hack" in the older, more optimistic 1970's way, like "figure out what makes it tick and do cool things with it" instead of the more sinister modern sense. I don't attribute any malice or ill intent to Simons/RenTec, at least not without evidence.
I guess I could reinterpret/update my comment in light of what you've said to now say that "whatever value these men and women are creating inside this secretive firm, there's a strong case to be made that it's not the most urgent or needed kind these days".
I'm curious and sincerely so, though, when I ask: what actual value does quantitative finance create?
It means that anyone can change money into a different currency without having to worry about being ripped off. There is one exchange rate and you'll be paying that plus a small margin.
It means that anyone can invest in publicly traded companies without having to spend an inordinate amount of time and effort trying to value them. Pension funds would be next to impossible without this. To the extent that the market is efficient, you don't have to worry about the imminent collapse of IBM. If anybody knew, the prices will reflect it even if the rest of the world has no idea why the prices are as they are. (The further markets get from being efficient, the further this gets from being true. Compare investing in the S&P 500 to the shenanigans happening with penny stocks. Be glad that your pension fund gets to invest in the former so it can pass on the latter.)
It means that companies can raise money without too much difficulty. They'll sell a part of themselves, and a legion of quants will give them as fair a price as humanly possible. If the price were unfair, someone could exploit it to make money , correcting the price in the process. Ergo the price will be fair. While this sounds far removed from the welfare of the people, this is what greases the engine that runs the jobs of virtually everyone in the developed world. It also lets people pool risk to try risky but worthwhile things. The impact this has on innovation cannot be overstated.
Of course, I agree with the above poster that finance probably isn't the best place for smart people to spend their lives. I'm just claiming that finance people aren't overpaid, everyone else is ludicrously underpaid.
There's still a bit of dissonance in this for me, but it's abstract and strays a bit what you're saying, so don't feel a need to respond: I think, for example, about the friends and acquaintances I have in finance who I've often heard lament about the lack of meaning, utility, and social value in their work despite the good pay. They're smart men and women, every single one, so I'm sure they know they case you're making - so what gives? (This is clearly more a question for them than for you.)
I also wonder idly what proportion of the explosion in the finance industry since the 1970's is taken up by the sorts of plainly beneficial and useful efforts you describe, and what proportion is simply craven, greedy bullshit. Clearly the latter is more salient in the cultural and moral imagination, in no small part because of the Madoffs and the Beskys and the Milkens of the world, not to mention everyone involved in the 08 crisis. That the former isn't as salient makes me think, like, how many Jack Bogles are there for every Gordon Gekko? I know a ton of Gekkos - I went to college with them! - but few Bogles.
As has been mentioned elsewhere, these are some of the best and brightest people from their fields who have established reputations and are well-known in their fields. I would assume most of these people have spent the bulk of their professional lives working in academia or in pure research, so I do wonder how many of the RenTech employees are people have been working for (relative) peanuts in academia before making the switch towards the end of their careers and "cashing out" essentially. Pretty sweet if you ask me.
My bet it's some Frankenstein advanced brain machine interface device using the combined consciousness of 10,000 cryogenically preserved heads in a secret cliffside bunker. /s
On a completely unrelated note, if I were interested in creating a fund that appeared to have market beating returns for decades and I wasn't concerned about the legal consequences, here's one way I might do it:
I would create fund A and B and seed them with some initial capital. For fund A, I would create a machine learning model that took in lots of opaque parameters and hire a team of very smart mathematicians and computer scientists to optimize this model to perform profitable trades. In order to easily generate alpha, I would subtlety feed in some parameters that were correlated to the future market moving actions of fund B. Since I also run fund B, I uniquely have this information.
I would use the performance of fund A to woo outside investors into investing their money into fund B. In order to prevent fund A from overtaking fund B in asset value and thus diminishing the value of the subtle signals, I would close the fund to the public when it got sufficiently large and periodically distribute its assets to its investors.
In order to avoid any of my employees from eventually figuring out what's going on and reporting me, I'd incentivize them to avoid looking too closely by requiring that they invest a large part of their income into the fund with a long vesting date. I'd also require them to sign a long term non-compete so that they cannot work anywhere else in the financial industry if they leave.
There's no way the incentives from something like this SEC program could outweigh the economics of being high up within Rentec. [No dog in this fight about theorizing fraud vs. legit, just saying the SEC gap is multiple orders of magnitude in incentives here.]
How would you stop investors in your two public funds (and their accountants) from asking pointed questions about disbursements from one fund to the others? Do you plan to fool them for this amount of time, or bring them into the conspiracy?
And how will you sustain the conspiracy when your other two funds trail the market index by a lower combined differential than your other, internal fund is beating the index? Will you initiate a Ponzi, or something else?
There is a more realistic angle to attribute RenTech's returns to fraud. I don't personally believe it as I have friends there, but I believe it would technically work:
A nontrivial number of RenTech's employees have come from the intelligence apparatus of the United States; namely the NSA. Simons was particularly affiliated with them early on in his math career. It strikes me as plausible (but again, highly unlikely) that if RenTech is is a conspiracy, it is a conspiracy sponsored by US intelligence. They would have the capability to run a 30 year secretive conspiracy, and they would have they desire to attract top talent in math, physics and computer science.
But I'm just speculating for fun year. I really don't think there's any conspiracy :)
The net effect is that fund A sees increased returns and fund B sees decreased returns.
People invest in funds that under perform the market all the time. That describes the majority of the finance industry.
Wouldn’t this be exceedingly traceable over time? Are trades not public over time? Especially larger positions?
Or do we only know when Berkshire Hathaway (for instance) sells off some Coca Cola stock because it’s a publicly traded firm?
It's also just a simple example of how it can be done. Many assets and derivatives are correlated to each other in the market in various ways. Their correlations can be exploited to allow you to do the same thing using an arbitrarily complicated set of assets instead of just one.
Some trades are required to be public, but the majority aren't. It wouldn't be too hard to hide the transfers in trades that don't need to be public.
I agree that a sham seems unlikely. But to this specific point, didn‘t Madoff‘s scheme run for several decades? Wasn‘t he even made NASDAQ chairman or sth at some point?
I think multi-decade frauds are definitely possible.
My own pet conspiracy theory about Rentec is rather that Simons was a cryptographer so maybe there was/is some actual hacking involved at some point in the pipeline. I say this, of course, with zero nonpublic information and on the basis of nothing. The stated numbers are just so incredible, it boggles my small mind
There are plenty of folks out there that will do this for you. Just don't get greedy.
That's 100 people flipping coins, and being impressed that someone got 4 heads - all in a row.
Wikipedia says RenTec AUM is $110B. $10B for the Medallion Fund leaves $100B for the other two. So they would need to underperform by either >3.9% or >6.6%. I have had trouble finding exact numbers for those funds, so I can't determine if that's really the case or not.
However, this assumes RenTec is unable to beat the market at all. Maybe they really can beat it, but by only 2-3% per year. They can still funnel that outperformance into the smaller fund to turn it into 66%/39%.
Next step is to look up RIEF, RIFF, & RIDA's dollar returns to see if you can match the figures.
A funny thing from the recent book: One of Rentech's earlier employees spent his first few months there trying to figure out what the scam was.
He did have about 10 years worth of poor-to-decent results running other hedge funds before he found real success with RenTech. So it's not like this all came out of nowhere.
Also, as someone else noted, there is a 10x size difference between the two pools of money. So the big fund can “lose” 1% which generates a 10% increase in the small fund. Then you advertise that you are capable of incredible returns to induce people to invest in the big fund. Another reason why the small private fund is limited in size.
Citations needed: last time I checked, their outside funds beat the index.
As for your conspiracy theory: their outside funds didn't exist until recently.
I don't see a way this would go on for such a long time.
https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/0...
The author was interviewed on the Masters in Businesss podcast:
https://www.bloomberg.com/news/audio/2019-10-30/gregory-zuck...
Simons is a serious mathematician:
https://en.wikipedia.org/wiki/Jim_Simons_(mathematician)
He won the Oswald Veblen Prize in 1976:
https://en.wikipedia.org/wiki/Oswald_Veblen_Prize_in_Geometr...
Rentech is not the only hyper successful fund. There are others, like TGS management (https://www.google.com/amp/s/www.cnbc.com/amp/2014/05/09/mys...) that are just as successful and who you've never heard of.
What rentech has done is to have built an excellent data processing engine that automatically extracts signal from noise. Other, much more secretive, funds have done this too.
The only public data available (that I know of) is related to their charitable giving.
https://www.bloomberg.com/news/articles/2014-05-08/three-mys...
my naive assumption and pure guess would be that a lot of trading schemes looking for patterns do this thing to. they model what shows up as noise and other signals and also model what determines value, and then look for the signals that point to or away from value.
https://www.gw-openscience.org/GW150914data/LOSC_Event_tutor...
On who Simons hired: IIRC there is an interview with Simons where he explains that he hired good mathematicians, etc. who had published interesting work or some such. In particular, he required no MBA or business degrees, experience with accounting, reading corporate annual reports, SEC filings, or business.
So, my guess would be that at least for the early years of Simons's work, such people would not be very welcome in the rest of Wall Street and usually not considered the "best" or even good at all.
Point: That he hired "the best" has to do with what criteria one is using for goodness!
By the way, in this thread there is mention of Thorpe! So, yes, his Beat the Market had in the back that some argument was from "measure theory". So, before my Ph.D., I was working carefully through Royden, Real Analysis! I was getting through the two exercises on upper and lower semi-continuity when I went to grad school. Right away I took the 700 level course in analysis (measure theory and functional analysis) and probability. The prof was a star student of E. Cinlar, long head of Operations Research and Financial Engineering at Princeton. Got to meet him once! So, that background should be of interest on Wall Street? After some good efforts, not as far as I could tell although then I didn't yet know of Simons.
It is true that the year I got my Ph.D. near DC, the ORSA (Operations Research Society of America) conference was there and I submitted a resume. I was 110% busy taking care of my (later fatally) sick wife so didn't go but some friends said that on some bulletin board I had lots of requests from Wall Street! Gee!
At one time I interviewed at Morgan Stanley and mentioned my paper on multi-variate, distribution-free anomaly detection. A computer systems management guy was a little interested. Another guy wanted me to give him an outline of the paper; I did and mentioned that I'd like to work on applied math of trading -- his reaction seemed to be that neither he nor Morgan Stanley nor anyone on Wall Street would be interested in any such thing!
Later a Bertsekas student from MIT gave me the rumor that Simons also liked hiring Russian mathematical physicists!
Point: It seems to me from a distance that Wall Street has been slow to hire people like Simons did.
On what Simons did: There's an old comment that a good casserole is like a good marriage -- only the people who made it really know what is in it. My guess is that this remark applies also to Simons! In particular I doubt that we should regard him as a quant much like the rest of Wall Street.
Bluntly, I suspect that there's no telling what the heck Simons did: E.g., there's no law that he had to have much contact with the Markowitz work, the Sharpe work, the CAPM (capital asset pricing model), econometrics, classic time series analysis, the Thorpe work, the Black-Scholes work, the Martingale convergence theorem, the Doob decomposition, controlled Markov processes, stochastic differential equations, the Brownian motion solution to the Dirichlet problem -- he could have been doing things totally different!
Heck, quite generally it's beyond super tough to be on the outside trying to know what's going on inside: E.g., I got interested in cooking, once took my wife to André Soltner's Lutèce, but never got a clue about how he did it! E.g., I made some progress with violin but never figured out how Heifetz did it! E.g., I made some progress in physics but never figured out how Einstein did it! E.g., I made some progress in math but really have no idea how Simons did it. It's a Robert Frost one?? -- "We dance round and round and suppose while the secret sits in the middle and knows."??
My approach to making money is not to try to get hired on Wall Street, out on Long Island, or near the commodity pits in Chicago or Kansas City but just to do my startup. There I don't have to know all the ways people got rich in business -- it's enough for me to find just ONE way!
I don't have to know how all the cooking, music, physics, or math of the past was done -- it's enough for me to do some math for the problem I'm trying to solve.
I don't have to know every computer operating system, programming language, memory management or concurrency algorithm -- it's enough for me to know enough computing to get the code running for my startup.
Since I'm able to be a sole, solo founder, I don't have to convince people on Wall Street or Silicon Valley that I might make them money -- I just need to convince myself and then actually DO it!
And if I'm successful, my crucial core original applied math secret sauce should remain secret!
Point: I don't believe I can figure out how Simons did it!
https://www.newyorker.com/magazine/2017/12/18/jim-simons-the...
And this interesting theme:
> Foundations are not taxed, so much of the money that supports them is money that otherwise would have gone to the government. Scientific mega-donors answer to no one but themselves. Private institutes tend to have boards chosen by their founders, and are designed to further the founders’ wishes, even beyond their deaths. Rob Reich, a professor of political science at Stanford University and an expert on philanthropy, told me, “Private foundations are a plutocratic exercise of power that’s unaccountable, nontransparent, donor-directed, and generously tax-subsidized. This seems like a very peculiar institutional and organizational form to champion in a democratic society.”
Compare them with a Big N that has 10,000s of SWE’s. It’s a safe assumption that each engineer is individually less talented but even so, how do they iterate/experiment with such few employees?
Faster!
What were you applying for? A software position? If yes I am curious as to what programming questions did he ask.
False dichotomy, regardless.
Rentech is an absolute technology black box that will both take its money and knowledge into its grave with virtually no productive outcome for society at large.
The NSA and US nuclear science at least drives innovation.
We'd all like our opponent Poker players to play with their cards open, but if they did, they'd never win. Have to accept that you don't get to see the cards of winning players (which includes military technology until declassified).
I find this "Financial trading does not do any good for society" to be rather simplistic, romantic, and envious. The carpenter who turns wood into a chair is said to be producing value, but the investor who turned uncertainty into a profitable hardwood trade is not.
So no this has nothing to do with envy or romanticism. It's just a bad idea to have people with PhDs who could be changing the world play zero-sum gambling games on the stock market. These guys could be reinventing physics or bring us to mars. That's what makes people criticize these activities.
And as far as charity is concerned. Yes, Simon has done a lot of good. However, the other famous rentech guy is Robert mercer, and he is in the business of funding climate denialism. So whether you get a good philanthropist or a bad one is pure luck and has nothing to with the discussion on financial speculation.
Why is it so hard to accept that someone did the math?
https://www.rentec.com/Careers.action
My group is looking for very strong Java/Kotlin developers.
Denise is great, but I wouldn't say she's the best source to answer harmless but very important questions prospective Java programmers might have that you can answer, for example :)
Here's an example question for you: do you want candidates to also have tax and accounting experience, or is deep Java/Kotlin enough?
Something to consider.
She has forwarded requests that people may occasionally send directly to me in the past and I generally try to respond. I prefer all communication be done through proper channels to avoid any "issues" that might arise.
I have a son who is a CS major in college now. I completely understand how challenging (and borked) the hiring/interviewing process is now as I speak with him about the frustrations he experiences. Which is why I try to be approachable when people have queries.
It's not a fair comparison to say they just "did the math" when there are thousands of other, highly qualified, highly intelligent people trying to "do the math" at the same time, all the time, yet RenTech has managed to always come out ahead and not just barely, but massively ahead.
I don't believe RenTech is doing anything illegal. I think they have a extremely significant edge that they've managed to maintain for a significant period of time and that should be suspicious to anyone who participates in the market.
Mundane explanations, like (legal) information access advantage or superior model execution times, give fleeting advantages that are extremely unlikely to be unreproducible by others for very long, much less years or decades.
https://www.bloomberg.com/news/articles/2019-04-10/renaissan...
Wealth is not zero-sum, it's created. Real GDP (i.e. adjusted for inflation) in the world has increased from ~$3.4T to ~$110T since the 1900s.
Also, if all the smart minds were doing advanced trading in 1900, would the GDP have risen as much? Instead people were creating aircraft, fighting disease, creating the internet, etc.
Thermodynamics has some interesting implications regards wealth.
Their returns have been as good or better in the last 10 years even after doubling the fund size
Btw, the point to investing isn't an absolute level of knowledge but relative knowledge. If you keep moving ahead because you are smarter then you will keep outperforming. The view of most investors, not just in quant, is: I went to X university, I am very smart, anyone who does better than me is cheating/insider trading/committing fraud/etc. But the majority of people won't outperform regardless of "intelligence".
AHL has been doing quant for nearly four decades now, they only hire the elite, they even have their own quant finance institute at Oxford...results? Still shit because it isn't as easy as just hiring a ton of "intelligent" people. For some reason, smart people tend to believe that the real world is like university or government where success is achieved by other people thinking you are smart...it isn't like that. Obtaining results is the combination of many things (i.e. most quant firms churn and burn employees, most quant firms have trouble retaining staff, etc.).
I only interviewed at AHL so I cannot speak of the quality/intelligence of people working there, but judging by the difficulty of the interview, compared to some other companies, my conclusion is that their hiring bar isn’t that high. I also wonder how limited these companies are in their investment strategies - either they cannot invest into more sophisticated strategies (limited by investor agreements), or they don’t want to, because poor known returns are easier to justify (“trend following just had a bad year, nothing we can do about it”) than poor unknown returns (“we tried thes completely new thing that we have no experience in, and it didn’t work and we lost a lot of your money”).
The only goal is to make money. I understand your point in that AHL are dissimilar to RenTech but I didn't say any way was correct. The right way is whatever makes money. You have firms that look like AHL and do better.
I would look at who they actually hire. From what I know, there is almost no-one in their quant team who didn't go into Oxbridge (at least for PG). That is not a low bar.
Btw, I have seen this elsewhere. I know of non-quant firms that only hire from Oxbridge, and they get the same result as firms that don't have a specific analyst program (i.e. everyone rotates through admin/sales/marketing).
The point isn't that this doesn't work. RenTech have a high bar, it works. The point is that you have to really understand why you are doing it. Hiring "smart" people without thought only results in a higher wage bill.
And if we are going to get into it: one big issue with AHL has been the management (that is why David Harding left). They have got better but I don't think they are totally out the woods (I have heard they are trying to do momo in illiquid and esoteric markets...which won't work).
Saying it is the clients is one of the worst excuses in investment management. That is actually true one time in a hundred (BlueCrest is one). It is like the crap football teams complaining about good teams having all the money. Good fund managers have good clients because they don't fuck up all the time. The issue is AHL, for whatever reason, kept trying to do the same thing for decades, and expected to print money.
Regarding analyst/graduate rotations, what do you think is the actual value there? To me it seems just a way for the team to lose a potentially decent employee just as they’re done training him/her. If the idea is to familiarize juniors with the firm, what it does and how it works, wouldn’t a shorter program with direct lessons work better (e.g. what some investment banks do - send everyone to the HQ for a few weeks - or Jane Street, where everyone first learns OCaml)?
The effect, I believe, is two-fold: one, these guys are cheap. And two, you don't have to rely on someone's education, you can see if they actually can function in the workplace.
But this places a huge burden on actually being able to train people who aren't particularly intelligent to do a complex job and creating a team-based culture (i.e. where the sum is greater than the parts).
One example of this is Aberdeen Asset Management. They went from one guy in an office to one of the largest asset managers in the UK (and the world) by hiring this way. A big part of their growth came from acquiring firms with lots of lazy Oxbridge types, firing them all, and moving in their low-cost team of guys.
This isn't like what IBs do, it isn't what Jane Street. Both are highly selective, and hire into specific jobs. IBs will do a big training program over a few weeks to get everyone up to speed (i.e. on accounting, whatever) but what I am talking about is 3-month rotations through every part of the business.
HR at IBs hire "geniuses", they hire the best of the best...if you do this, it makes no sense to pay them a big salary and then stick them in the back office (they will probably get poached). Now most of these people aren't actually any good, most will get promoted up to VP because they have been there X years, and then get laid off during a recession...but the hiring culture is totally different (and btw, massively overstates the ability of HR too). And btw, it is semi-efficient because most IBs understand they will end up with a bunch of overpaid turnips...it is worth it to find the next rainmaker (but the rainmaker in asset management never pays off because they get poached).
Btw, I'd love to meet and chat about this. If you're in London, feel free to email me tom.primozic at gmail
RenTech aren't hiring smart people. They are hiring people with technical ability and with a proven track record for solving very open-ended problems.
AHL is mainly hiring grads, definitely very smart people with strong postgrad quals but with no real track record. This can work if your model is technology-based like a Citadel or Jump. But you will get creamed in the world of RenTech.
All I can say for sure is that I have definitely seen this in non-quant investing. Firms that hire people from worse academic institutions, focus heavily on training, and have a culture that encourages teamwork do way better than firms that hire the "genius" types.
For example, AQR (which is more of a mutual fund I know, but its a prime example) is known for hiring based on academic prestige, and the returns have been absolutely dismal. But they have a specific "investment philosophy" and a brand name, so the game is to never admit that their strategy is a failed one. They cant outwardly say their strategies dont work. Its the same with replacing a bad portfolio manager, funds whos portfolio managers are well known cannot switch them easily, as soon as investors discover a big internal change (like high up management/PMs leaving) they know something is wrong and may pull their money.
This all ties in to how they hire, with school prestige usually the most important criteria. I worked at one place where everyone on my team went to either princeton, yale, or wharton. They were all intelligent, energetic, on the ball. None of them were "exceptional". Whats worse, none of them could program, none really knew statistics, etc, but they were all "Data Scientists". I was appalled at the amount of money being made and how much these guys were being paid.
This is in contrast to places like Citadel or Two Sigma. Whose business model still holds prestige, but is basically already a well oiled machine. Citadel doesnt need a brilliant mathematician like Jim Simmons, they need a smart guy that can crank out work, who fits as a cog inside their money printing machine. Citadel is better at things like HFT, some alternative data etc, but its a calculated better, they know where to get their edge, how to get it, and who to hire for it. Its a business where the employees can be plugged in.
I can only add that I have seen the same thing with prestige outside hedge funds. A fun example is Andreessen Horowitz: no-one feels stupid underperforming with these guys, I mean look at Marc's head...he has to be a genius, right? Lul.
In real life you can't run a fund by finding insiders willing to commit crimes routinely. But you often can get the same information by other means by collecting intelligence. Observing traffic, the flow of materials, following people and finding who meets who.
IANAL, but I’d imagine that then it’s no longer non-public information (at least in the US).
He's a MIT/Berkley Math professor.
The Simons Center for Geometry and Physics has an art gallery and an associated lecture series, and James often shows up to participate in these events. Luckily, these events are free to enter for all graduate students. At one of these events, I'd commented that a particular piece reminded me of a crystalline structure I was interested in studying (as a li-ion cathode). James overheard me and came over to quiz me on some of my group's work. About 8 months later, I ran into him at another lecture. While he didn't remember my name, he asked how my hollandite simulations had turned out.
This anecdote doesn't really prove anything, other than that Dr Simons is a pretty cool dude.
The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman
There are indications that the main rentech fund is a combination of high leverage and some potentially risky tax plays through structured products.
Someone, I suspect, knows.
https://www.amazon.com/Man-Who-Solved-Market-Revolution-eboo...
I'm most of the way through it, it's an interesting read
Building a meta model from predictions submitted by the community (based on encrypted training data provided by Numerai).
More info in their video below. Also Howard Morgan the Co-Founder of Renaissance Technologies too is talking about them and a group of investors led by him invested $1.5m in the company:
https://www.youtube.com/watch?v=dhJnt0N497c
Their performance is not public, the only hint you can find about it is in their recent video about some backtests (which doesn't mean it's their real-world performance):
and by "simply trade" I really mean "trade in an incredibly sophisticated and clever way"
- Treat the markets as a complex dynamical system and use the tools from statistical physics such as the Gibbs Ensemble, to derive internal states from input and output.
- Treat the markets as an encryption algorithm and use the tools from cryptanalysis, such as differential cryptanalysis: Even when unable to decipher the full algorithm (total break), one may still derive details and a subset of system functionality.
- They were probably the first to heavily use Hidden Markov Models (see Baum–Welch algorithm and the IBM speech recognition recruitment) and keep on the frontline with new machine learning algorithms (their deep learning revolution would have started 10-15 years before industry).
- They'd have an extremely solid backtesting pipeline, where any new feature can be stress-tested for signal. Features could be very arcane (% of mentions of the currency on neighboring state television) and are constantly (re-)added and removed: concept drift and market competition would gradually weaken signals, but fresh signals are added to keep the performance.
- All features are fed into a single final model (which may be an ensemble of many different forecasting techniques as to lower the variance). This model is very dynamic year-by-year (with just a few long-term signal features).
- Finally, I suspect there are strategies that only become available when you have 1 billion under control. In a physics sense: That is a lot of energy / control theory experimentation budget. Normally, hedge funds would like to avoid feedback loops and their trades moving the markets, but I suspect there is a lot of money to be made when you can calculate in which direction the market would move when the system is deprived of - or infused with a jolt of energy. More hands-off: Buy for 1 billion in stock at market open, sell at market close. Buy signal will take a few hours to converge and result in a higher price, so you make a profit when you sell your portfolio to the very buyer's market you created, causing a drop in price to complete the loop.
- The extreme returns for 2007/2008 could be due to the increase in volatility of the crisis (you can make more money when there is a lot of action, and competitors suffer from human herd bias / hysteria), but also, in part, due to them being the first to effectively exploit signals in growing social media platforms and search engines. A few years later it was public knowledge that gauging frequency and sentiment on Twitter was once a valuable signal.
- The NSA/CIA type recruits would not work on industrial spying, but on cryptanalysis, (graph) data mining, OSINT, HUMINT, IMINT, and for the security of the firm (which probably runs a tighter security than the intelligence agencies of smaller countries).
BTW: RenTech made a fortune when they were long on oil futures and the Iraq war happened. Another possible legit use for the NSA/CIA type recruits could be for geopolitical intelligence.
[1] https://www.nytimes.com/2000/09/21/business/sec-says-teenage...
No. This is what people like LTCM believe. It does not work, the underlying processes driving markets constantly change.
> - Treat the markets as an encryption algorithm and use the tools from cryptanalysis, such as differential cryptanalysis: Even when unable to decipher the full algorithm (total break), one may still derive details and a subset of system functionality.
- They were probably the first to heavily use Hidden Markov Models (see Baum–Welch algorithm and the IBM speech recognition recruitment) and keep on the frontline with new machine learning algorithms (their deep learning revolution would have started 10-15 years before industry).
Yes, and as a fun note, Peter Brown, their current CEO, was Geoff Hinton's grad student.
- They'd have an extremely solid backtesting pipeline, where any new feature can be stress-tested for signal. Features could be very arcane (% of mentions of the currency on neighboring state television) and are constantly (re-)added and removed: concept drift and market competition would gradually weaken signals, but fresh signals are added to keep the performance.
- The extreme returns for 2007/2008 could be due to the increase in volatility of the crisis (you can make more money when there is a lot of action, and competitors suffer from human herd bias / hysteria), but also, in part, due to them being the first to effectively exploit signals in growing social media platforms and search engines. A few years later it was public knowledge that gauging frequency and sentiment on Twitter was once a valuable signal.
- The NSA/CIA type recruits would not work on industrial spying, but on cryptanalysis, (graph) data mining, OSINT, HUMINT, IMINT, and for the security of the firm (which probably runs a tighter security than the intelligence agencies of smaller countries).
All correct.
He and his firm did more than anyone I know to make the world a more unstable place.
https://www.bloombergquint.com/business/renaissance-s-medall...
By Occam's razor, it is more likely that Robert Mercer made use of his close ties with Trump administration to gain insider knowledge, than RenTec consistently having superior quantitative analysis than their competitors in an extremely competitive and saturated industry.
Run by Robert Mercer, the money man who associated with prominent money launderers.
Based on my priors, Occams Razor says Rentech is a laundromat, not a hedge fund.
It's just they have $10B invested and then they distribute $6.6B per year and that's it (i.e., the fund doesn't become $16.6B next year).
Still take your point that it's an insane figure!
Cry me a river for poor Mercer who was “forced” to resign. Was that comment satire? Had Simmons not known who his CEO was before the “backlash”? Of course he did.
I didn’t get the corner part, must be an US thing. Apparently if you demand some intellectual decency you’re “religious” (?!?)