The legend of Jim Simons and RenTec Medallion Fund

The legendary investor behind Renaissance Technologies (RenTec), Jim Simons passed away on Friday, 10 May. May he rest in peace. Having said that, I have to address all the fawning commentary that burst forth all over the internet over the weekend. Example: an admirer posted a Tweet stating in all caps that, "IF YOU INVESTED JUST $1,000 IN JIM SIMONS MEDALLION FUND IN 1988 YOU WOULD HAVE OVER $42 MILLION DOLLARS, [BLA, BLA, BLA…]"

There’s a number of reasons why I don't buy the legend of the RenTec Medallion fund or their performance figures, and neither should you. Over the last 25 years, I’ve devoted a good deal of time and effort into researching the performance of active investment managers and found that while there are some outliers, over the long term the best among the best tend to perform in the mid to high teens: around 16-17%. The outliers may go to low 20s, but almost invariably, such outperformance (like Peter Lynch) overlaps a major boom cycle, or like Buffett, they systematically follow the momentum strategy (even while they sell it as ‘value investing’). In that context, it is very extraordinary to encounter a fund that managed to outperform even Nancy Pelosi, delivering a 62% performance for over three decades wit zero negative years. According to themselves, that is.

The strategy: mostly mumbo jumbo

The company is very secretive, and for the longest time Simons has been reluctant to discuss the fund's performance. But he has given some interviews, and here's how he explained the fund's strategies: "Our trading models tend to be contrarian, buying stocks recently out of favor and selling those recently in favor.” Having spent over 25 years researching markets and price fluctuations, I would award Simons zero credibility points for that particular statement. It is extremely unlikely that the fund earned 62% buying stocks out of favor and selling those in favor. Not. A. Chance!!!

In a November 2000 interview with Institutional Investor, Simons offered a different, but slightly more detailed explanation of Medallion’s strategy: “We look at anomalies that may be small in size and brief in time. We make our forecast. Then, shortly thereafter, we reevaluate the situation and revise our forecast and our portfolio. We do this all day long. We’re always in and out and in. So we’re dependent on activity to make money.” Err… that sounds like high-frequency trading - why hasn't anyone else thought of that?

I've come across another few statements from Simons, including crediting his success to luck (what, for 3 decades straight and without a single 'unlucky' year in between?). In all, I never found anything that felt even half-way authentic; it’s all mostly mumbo-jumbo about "a great computing system, good scientists and low turnover," at the core of the company and about never stopping improving the models to stay a step ahead of competition, bla, bla, bla…

According to Simons, Renaissance was basically doing what all other active hedge fund managers do. Yet somehow they outperformed the best of the best by a factor of 3 – and over a 33-year period!! Why would anyone believe such a story without independent verification (there is no independent verification) is a mystery all in itself.

Believe us... because we say so!

Medallion is open only to company insiders, so there's no independent administrators, independent accounting nor external auditing of its performance: they can report whatever figures they like and I can think of a few reasons why they might like to spike those figures. Would you be surprised that a dispute arose when the IRS wanted to collect its due share of those famed profits. It appeared that RenTec short-changed the IRS by a whopping $6.8 billion over a 15-year period. Was it because the firm's profits weren't quite as rich as advertised? We don't know because RenTec settled quitely with the IRS. But wait, there's more...

In 2005, RenTec launched the Renaissance Institutional Equities Fund (RIEF). Unlike their insider-only Medallion fund, RIEF was open to outside investors and Simons expressed the hope that it could grow to $100 billion under management. Well, who wouldn’t jump at the opportunity to invest in such a stellar outfit? But somehow, in spite of the very same “good scientists, good computing systems, and low turnover,” RIEF turned out to be a disappointing flop. From launch in July 2005 to its closing in 2009, the fund lost 4.42%.

These figures were reported in a 17 Feb. 2010 Financial Times article by hedge funds correspondent Sam Jones. Interestingly however, all traces of that article have subsequently been removed from the internet. That’s a sure sign of power public relations agency work. Another of RenTec's funds open to outside investors, the Renaissance Institutional Futures Fund (RIFF) performed even worse than RIEF and had a short shelf-life. But wait, there's more...

Like many famed, high-flying outfits, RenTec has strong deep-state and political connections. Before setting up his investment management firm, Jim Simons worked at the Institute for Defense Analyses under the auspices of the National Security Agency. RenTec's long-time CEO, Robert Mercer (1993-2017) was also recruited from the defense industry (before joining the firm he worked at the Air Force Weapons Laboratory at Kirtland Air Force Base) and became a huge political donor with very extensive involvement in politics. In 2015, The Washington Post called Mercer one of the ten most influential billionaires in politics.

There's more still, but as fascinating as the case of Renaissance Technologies may be, my point is simple: the legend of RenTec doesn't pass the smell test and its stellar reputation is almost entirely based on what RenTec and their paid PR agents have to say about RenTec. My own suspicion is that it is simply a deep-state hatched money-laundry like many hedge fund outfits.

Coming soon: over the last four years we've experienced the greatest US bonds bear market on record. The slow-motion trainwreck in the world's largest and most important market will prove rife with risk and opportunity and we'll explore where it could go and how to navigate the coming changes. For updates, check my Substack or I-System Trend Following website.

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