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There was a discussion of this company the other day and the suggestion that unlike the other outperforming hedge funds that turned out to just be insider tradi

There was a discussion of this company the other day and 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. I am skeptical; they do not have a monopoly on brains. What they do have is some shadiness in their history: http://wallstreetonparade.com/2014/07/senate-renaissance-hedge-fund-avoided-6-billion-in-taxes-in-bogus-scheme-with-banks/ http://wallstreetonparade.com/2014/07/senate-renaissance-hed... I am sure there is more like this waiting to be uncovered.

throwawaymath 8y ago
I know a few people who work at RenTech. I would be very surprised if the operation turned out to be fraudulent. It certainly could be, but I very much doubt it. 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.
- quietthrow 8y ago
  What are the people that you know like? Are they all multimillionaires now? Are they genius level smart by conventional standards. Did they apply for a job there or where they “plucked” from else where? How do they make such a shitload of money there?
  - auntienomen 8y ago
    I can't speak for throwawaymath, but the people I knew who went there generally were academics who had already done great things or from whom great things were expected. I don't have much use for the term genius, unless we're talking about Grothendieck or Witten. But yes, we're talking about people who stood out among the crowds of extraordinarily smart people in top tier academia, and who'd actually managed to _do something_ with their intelligence. 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. ;)
    - bradleyjg 8y ago
      I'm not one of those people that have a moral objection to making money, or holds to crazy conspiracy theories about hedge funds, or anything like that. But it does seem kind of sad when you lay it out like that.
      - lenticular 8y ago
        We do have rather interesting incentives in our society to induce so many talented people to do essentially zero-sum game trading instead of science or math.
        mrchicity 8y ago
        Commercial work will always pay better than academia. Roles like trader/quant where your value is measurable & portable will always pay better than being a drone in a big machine like Google. If anything, front office finance roles aren't underpaid: people with similar skill sets are underpaid elsewhere. 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.
        bradleyjg 8y ago
        I knew, or at least knew of, some of the vest guys as fathers of people I grew up with. As in any group it’s a mixed bag, but I feel pretty confident that none of them were missing their true calling in pushing forward the boundaries of our understanding of hidden markov models or getting speech recognition to work. We’ve used those kind of resources to free up people to, I don’t know sell whole life insurance policies or something. I’m sure there’s a sense it which it is efficient, like I said I’m not a centrally planned economy guy, but there does seem to be something off about it. I mean there are computational cancer models that need to be written and optimized.
- auntienomen 8y ago
  I know some folks there too, and I sincerely doubt they're fraudsters. 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.
scottlocklin 8y ago
There was a conspiracy theory making the rounds for a bit based on Simons connections to Columbia. He rode a moped down there in the 50s, and I think won a tile or carpet factory in a card game. I don't think anyone but the haters give it any credence, but it shows you what kind of person Simons is besides "smart." 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.
- auntienomen 8y ago
  I don't think the card game story is true, alas. Recollection is that Simons convinced his father to invest and they nearly lost their shirts when the tile factory took longer than expected to become profitable. 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.
lordnacho 8y ago
Article does not seem very well written. It presents margin trading as some sort of special privilege. It also makes some very vague suggestions about "large partnerships". And then it name drops RenTech, even though they really aren't that special in this connection. > 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.
- throwawaymath 8y ago
  > 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, ... > 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.
- clausok 8y ago
  Here are a few insights on the rentech process from Nick Patterson, one of their senior statisticians there for a decade: [...I joined a hedged fund, Renaissance Technologies, I'll make a comment about that. It's funny that I think the most important thing to do on data analysis is to do the simple things right. So, here's a kind of non-secret about what we did at renaissance: in my opinion, our most important statistical tool was simple regression with one target and one independent variable. It's the simplest statistical model you can imagine. Any reasonably smart high school student could do it. Now we have some of the smartest people around, working in our hedge fund, we have string theorists we recruited from Harvard, and they're doing simple regression. Is this stupid and pointless? Should we be hiring stupider people and paying them less? And the answer is no. And the reason is nobody tells you what the variables you should be regressing [are]. What's the target. Should you do a nonlinear transform before you regress? What's the source? Should you clean your data? Do you notice when your results are obviously rubbish? And so on. And the smarter you are the less likely you are to make a stupid mistake. And that's why I think you often need smart people who appear to be doing something technically very easy, but actually usually not so easy.] [[at] my hedge fund, which was not a very big company, we had 7 Phd's just cleaning data and organizing the databases] http://www.thetalkingmachines.com/episodes/ai-safety-and-legacy-bletchley-park http://www.thetalkingmachines.com/episodes/ai-safety-and-leg... quotes from ~30:06 & ~38:03
paulpauper 8y ago
maybe it's market making. they act as a middleman between buyers and sellers of options and other financial instruments

throwawaymath 8y ago

I know a few people who work at RenTech. I would be very surprised if the operation turned out to be fraudulent. It certainly could be, but I very much doubt it. 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.

quietthrow 8y ago
What are the people that you know like? Are they all multimillionaires now? Are they genius level smart by conventional standards. Did they apply for a job there or where they “plucked” from else where? How do they make such a shitload of money there?
- auntienomen 8y ago
  I can't speak for throwawaymath, but the people I knew who went there generally were academics who had already done great things or from whom great things were expected. I don't have much use for the term genius, unless we're talking about Grothendieck or Witten. But yes, we're talking about people who stood out among the crowds of extraordinarily smart people in top tier academia, and who'd actually managed to _do something_ with their intelligence. 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. ;)
  - bradleyjg 8y ago
    I'm not one of those people that have a moral objection to making money, or holds to crazy conspiracy theories about hedge funds, or anything like that. But it does seem kind of sad when you lay it out like that.
    - lenticular 8y ago
      We do have rather interesting incentives in our society to induce so many talented people to do essentially zero-sum game trading instead of science or math.
      - mrchicity 8y ago
        Commercial work will always pay better than academia. Roles like trader/quant where your value is measurable & portable will always pay better than being a drone in a big machine like Google. If anything, front office finance roles aren't underpaid: people with similar skill sets are underpaid elsewhere. 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.
        bradleyjg 8y ago
        I knew, or at least knew of, some of the vest guys as fathers of people I grew up with. As in any group it’s a mixed bag, but I feel pretty confident that none of them were missing their true calling in pushing forward the boundaries of our understanding of hidden markov models or getting speech recognition to work. We’ve used those kind of resources to free up people to, I don’t know sell whole life insurance policies or something. I’m sure there’s a sense it which it is efficient, like I said I’m not a centrally planned economy guy, but there does seem to be something off about it. I mean there are computational cancer models that need to be written and optimized.
auntienomen 8y ago
I know some folks there too, and I sincerely doubt they're fraudsters. 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.

scottlocklin 8y ago

There was a conspiracy theory making the rounds for a bit based on Simons connections to Columbia. He rode a moped down there in the 50s, and I think won a tile or carpet factory in a card game. I don't think anyone but the haters give it any credence, but it shows you what kind of person Simons is besides "smart." 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.

auntienomen 8y ago
I don't think the card game story is true, alas. Recollection is that Simons convinced his father to invest and they nearly lost their shirts when the tile factory took longer than expected to become profitable. 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.

lordnacho 8y ago

Article does not seem very well written. It presents margin trading as some sort of special privilege. It also makes some very vague suggestions about "large partnerships". And then it name drops RenTech, even though they really aren't that special in this connection. > 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.

throwawaymath 8y ago
> 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, ... > 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.
clausok 8y ago
Here are a few insights on the rentech process from Nick Patterson, one of their senior statisticians there for a decade: [...I joined a hedged fund, Renaissance Technologies, I'll make a comment about that. It's funny that I think the most important thing to do on data analysis is to do the simple things right. So, here's a kind of non-secret about what we did at renaissance: in my opinion, our most important statistical tool was simple regression with one target and one independent variable. It's the simplest statistical model you can imagine. Any reasonably smart high school student could do it. Now we have some of the smartest people around, working in our hedge fund, we have string theorists we recruited from Harvard, and they're doing simple regression. Is this stupid and pointless? Should we be hiring stupider people and paying them less? And the answer is no. And the reason is nobody tells you what the variables you should be regressing [are]. What's the target. Should you do a nonlinear transform before you regress? What's the source? Should you clean your data? Do you notice when your results are obviously rubbish? And so on. And the smarter you are the less likely you are to make a stupid mistake. And that's why I think you often need smart people who appear to be doing something technically very easy, but actually usually not so easy.] [[at] my hedge fund, which was not a very big company, we had 7 Phd's just cleaning data and organizing the databases] http://www.thetalkingmachines.com/episodes/ai-safety-and-legacy-bletchley-park http://www.thetalkingmachines.com/episodes/ai-safety-and-leg... quotes from ~30:06 & ~38:03

paulpauper 8y ago

maybe it's market making. they act as a middleman between buyers and sellers of options and other financial instruments