Renaissance’s Medallion Fund Surged 76% in 2020. Funds Open to Outsiders Tanked

The natural destiny of every fund that consistently beats the market is to return outside capital. Eventually it makes more sense to transition to a proprietary trading firm or family office than it does to share superior returns with investors.

Two reminders are worth repeating:

1. Renaissance isn't unique because of Medallion's returns, it's unique because it achieves those returns on a very high AUM. Other firms consistently hit that kind of return, but they may only do it on an order of magnitude or two or three lower than RenTech can do it. This contributes to returning outside capital. A lot of prop shops set a goal to hit 200%+ and consider it a bad year a failure if they don't hit at least 100%. But they're working with like $10 - 100M total capital.

My personal hypothesis is RenTech's research talent spends a significant amount of time specifically focused on novel ways to scale strategies beyond capacity constraints.

2. It's important to consider fund performance against their own benchmarks on a risk-adjusted basis. Beating the market is great, especially with absolute returns, but it's not the only rational pursuit for an investment. Reasonable investors have different goals. I haven't actually checked, but the non-Medallion funds might still be desirable from this perspective.

Incidentally, 2020 was a great year for a lot of funds. There were a bunch that returned 70%+ on the high volatility.