4 ms·

To be frank, running this sham for 30 years sounds less plausible to me than beating the market the boring way. How would you stop investors in your two public

To be frank, running this sham for 30 years sounds less plausible to me than beating the market the boring way. 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 :)

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gibybo 7y ago
There would be no disbursements from one fund to the other. Fund A would purchase an asset slowly over time. When it has finished purchasing the asset, fund B would purchase that asset quickly at a scale large enough to increase the market price of it. As the price rose, fund A would sell its position. The net effect is that fund A sees increased returns and fund B sees decreased returns.
- Carioca 7y ago
  And, importantly, the proportional impact in fund A is much larger than the one in fund B
- rramdin 7y ago
  This is throwing any efficient-market hypothesis out the window. Msybe this would work for a year, but why would anyone invest in fund B if it is a consistent loser. If you can figure out a way to slowly buy an asset and then quickly buy more of it and make both strategies profitable at all, then you're onto something huge. Almost as huge as Ren Tech
  - gibybo 7y ago
    It assumes an efficient-market. The money is coming at the expense of fund B. It doesn't need to be a consistent loser, it just needs to make less than it otherwise would on average. People invest in funds that under perform the market all the time. That describes the majority of the finance industry.
  - ivalm 7y ago
    I mean, hedge funds on average ARE consistent losers. People invest in B through marketing and proximity to A.
  - deleted 7y ago
    [deleted]
- codyb 7y ago
  Hopefully not a silly question, isn’t this just a classic pump and dump scheme? 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?
  - gibybo 7y ago
    A pump and dump relies on manipulating others. In this scenario, the goal of the buying/selling patterns is not to manipulate the market into believing the price of the asset is something different, but just as a mechanism for transferring money between the funds. 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.
    - codyb 7y ago
      Huh, neat, thanks for the detailed answer. I wonder how something like this would scale. Seems like you’d hit a limit where large trades would get noticed, so I guess the key would be to spread it over time.
      - deleted 7y ago
        [deleted]
HSO 7y ago
> running this sham for 30 years sounds less plausible to me than beating the market the boring way. 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
pmart123 7y ago
I believe the newer funds were created well after the original fund and were designed from inception to have a larger trading window. I’m sure you could commit fraud front running rebalances, etc, but not to the tune of $6B a year.

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gibybo 7y ago

There would be no disbursements from one fund to the other. Fund A would purchase an asset slowly over time. When it has finished purchasing the asset, fund B would purchase that asset quickly at a scale large enough to increase the market price of it. As the price rose, fund A would sell its position. The net effect is that fund A sees increased returns and fund B sees decreased returns.

Carioca 7y ago
And, importantly, the proportional impact in fund A is much larger than the one in fund B
rramdin 7y ago
This is throwing any efficient-market hypothesis out the window. Msybe this would work for a year, but why would anyone invest in fund B if it is a consistent loser. If you can figure out a way to slowly buy an asset and then quickly buy more of it and make both strategies profitable at all, then you're onto something huge. Almost as huge as Ren Tech
- gibybo 7y ago
  It assumes an efficient-market. The money is coming at the expense of fund B. It doesn't need to be a consistent loser, it just needs to make less than it otherwise would on average. People invest in funds that under perform the market all the time. That describes the majority of the finance industry.
- ivalm 7y ago
  I mean, hedge funds on average ARE consistent losers. People invest in B through marketing and proximity to A.
- deleted 7y ago
  [deleted]
codyb 7y ago
Hopefully not a silly question, isn’t this just a classic pump and dump scheme? 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?
- gibybo 7y ago
  A pump and dump relies on manipulating others. In this scenario, the goal of the buying/selling patterns is not to manipulate the market into believing the price of the asset is something different, but just as a mechanism for transferring money between the funds. 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.
  - codyb 7y ago
    Huh, neat, thanks for the detailed answer. I wonder how something like this would scale. Seems like you’d hit a limit where large trades would get noticed, so I guess the key would be to spread it over time.
    - deleted 7y ago
      [deleted]

HSO 7y ago

> running this sham for 30 years sounds less plausible to me than beating the market the boring way. 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

pmart123 7y ago

I believe the newer funds were created well after the original fund and were designed from inception to have a larger trading window. I’m sure you could commit fraud front running rebalances, etc, but not to the tune of $6B a year.