7 ms·

I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?"

I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?" Then they say "The Medallion fund has been closed to external capital since 1993 ... whatever profit they make, they pay out". So clearly it can't be a ponzie scheme? Still, it seems too good to be true. If financial experts are stumped as well then that also seems like a red flag.

huffmsa 7y ago
I don't think they could keep it up for that long without slipping up at least once. Enron started around the same time and got tripped up in 2001. If it were a one man investment shop, then maybe it leans more towards fraud. But if they obviously employ dozens of quants, and have obvious hardware outlays, it seems less likely. It makes a lot of sense to me that they just win a bit more than they lose, play a lot of hands, and treat everything with pretty even money, so they're never overexposed in any one place.
- huffmsa 7y ago
  I think I have the math right here, but let's say you start with > Capital = $100 1 time a day 5 days a week 50 weeks a year, you're going to take your capital and place that many $1 bets with it. Let's say you net +1% on your deployed capital ever day. After 250 rounds, you have $1215 in the bank. Again, correct the math if I'm wrong. But scale that down to 0.57%, which is the win rate I saw, and they're making ~$600/yr, which is the stated average return. Seems legit
  - papln 7y ago
    > Let's say you net +1% on your deployed capital ever day. That's the "..." step in "1 steal underpants, 2 ..., 3 Profit!"
    - huffmsa 7y ago
      Well yeah. But that's what they've figured out. It's unlikely, but not impossible.
  - texasbigdata 7y ago
    The book has more detail. They raised capital in the beginning.
- papln 7y ago
  Enron only collapsed because they intentionally destabilized major public-facing national security infrastructure (retail energy markets), and they were incredibly brazen and sloppy about it. If they didn't make as large bets on collateral damage, and they acted with professionalism, they would have been fine.
  - huffmsa 7y ago
    See what you said? They made too many large, overleveraged bets. Blew them up
yasp 7y ago
My mind went to the same place.
thomak 7y ago
Financial experts aren’t stumped. The article found one guy who’s trying to get attention, but in general, folks are both impressed and pretty sure it’s real.
- macspoofing 7y ago
  You have one fund that is an extreme outlier in performance over decades (!!) that nobody can explain and yet 'financial experts' aren't stumped and are 'pretty sure it's real'?
- SirLJ 7y ago
  This was no expert, but an academic... those who can't do, teach...
  - ceejayoz 7y ago
    Yeah, those useless academics. https://en.wikipedia.org/wiki/List_of_Nobel_laureates_by_university_affiliation https://en.wikipedia.org/wiki/List_of_Nobel_laureates_by_uni...
    - SirLJ 7y ago
      any successful academic in economics making money in the stock market? Or I am missing something? Maybe a Nobel winner from Chicago?
      - ceejayoz 7y ago
        No, for the same reasons the soldier pressing the button at a nuclear test doesn't get the Nobel Prize for doing so.
        SirLJ 7y ago
        like the reasons for Nobel for Fama for the wrong theory...
      - 7y ago
ajmurmann 7y ago
Could they been moving money from their open to investments , less successful funds to the medallion fund? Maybe even thought the market via trades?
- Noughmad 7y ago
  This makes a lot of sense. Sacrificing a percent of profit from other funds won't make that much of a different in the minds of possible investors, but managing a fantastically high fund must be a good advertisement.
- RookyNumbas 7y ago
  No, the medallion fund existed for 20 years before these other funds were opened.
  - papln 7y ago
    Was Medallion fund Rentec's only business, or was there other business they could skim from?
    - RookyNumbas 7y ago
      James Simons had a funds for tech startups. But it wasn't nearly large enough to support the kind of profits that happened.
toss1 7y ago
OK, what behaves like a Ponzi scheme that lasts too long? Money Laundering of assets on a national scale, e.g., for oligarchs who have taken 95% of a nations' wealth. Their biggest problem is to get it "legitimately" into the international money system. If the fund owners have really discovered a technological "secret sauce", why isn't it working in their other funds? Not a conclusion, but a valid open question.
- xt00 7y ago
  Closed to outside funds in 1993 (shortly after ussr collapse), returns after fees (and paying everybody as well at the firm) are above 50%, assets of 10 billion and anything above the 10 billion gets paid out every year.. so roughly 5 billion plus gets paid out every year? I mean, as a wise man said “I want to believe” but yea feels / smells like you said.. oligarch money laundering... 5billion in clean money every year.. not bad..
crawftv 7y ago
The reason is that they are highly levered with many small short term trades. >dealbook.nytimes.com/2014/07/21/senate-inquiry-faults-hedge-funds-tax-strategy/https://dealbook.nytimes.com/2014/07/21/senate-inquiry-faults-hedge-funds-tax-strategy/ https://dealbook.nytimes.com/2014/07/21/senate-inquiry-fault... “Jul 21, 2014 Within these complicated financial structures, Renaissance Technologies was able to borrow as much as $17 for every $1 in the account.”
jandrewrogers 7y ago
Even without knowing the full details, their returns are quite plausible if you have less speculative knowledge of their business. The challenge for most hedge funds is that any "edge" they find decays over time, often quickly, which leaves them scrambling to find a new edge that will allow them to outperform the market. Most hedge funds go to a lot of effort to preserve an edge to the extent they can. Renaissance focused on finding and developing novel mathematics that can be exploited to find an edge, some of which is extremely esoteric and unique, and then massively automating that. Consequently, they can find more new edges before breakfast than some hedge funds find all year. The real effect is that they don't need to milk a dying edge for returns because they are constantly generating new ones, and they can pick the best of the bunch at any point in time. The investment side of the business is mechanical. Their recruiting has reflected their deep interest in novel theoretical approaches to edge discovery. In a sense, they are a higher order abstraction of a more typical hedge fund.
- stanferder 7y ago
  I find it really hard to believe that the fund can be generating returns so consistently by pursuing a variety of different strategies over time. It seems very unlikely that Renaissance/Medallion constantly finds these things, whereas other operations almost never do. The conspiracy theorist in the back of my brain thinks that Renaissance/Medallion hires a lot of eggheads so they can plausibly claim to keep finding mathematical and operational edges, but the actual money-making strategy might be something else entirely.
  - RookyNumbas 7y ago
    These eggheads (very) occasionally move to other firms and see similar returns. Of course rentech then sues those other firms for all the profits they make. And they win.
    - chollida1 7y ago
      > These eggheads (very) occasionally move to other firms and see similar returns. Of course rentech then sues those other firms for all the profits they make. And they win. Not true at all as far as I know. Name one member of RenTech that went else where and made similar returns; I don't think you can because its never happened as far as I know. The closest I can think of is Pavel Volfbeyn and Alexander Belopolsky leaving to join the Millenium fund. Their performance there was so poor even not comparing their performance to what RenTech did so much so that they were let go even after Millenium settled the lawsuit with RenTech that allowed them to stay at Millenium.
texasbigdata 7y ago
No one is stumped, they're not making any external claim and they are not raising capital. This type of drive by analysis is the equivalent of "will Brad and jennifer get back together" at the grocery store check out line.

huffmsa 7y ago

I don't think they could keep it up for that long without slipping up at least once. Enron started around the same time and got tripped up in 2001. If it were a one man investment shop, then maybe it leans more towards fraud. But if they obviously employ dozens of quants, and have obvious hardware outlays, it seems less likely. It makes a lot of sense to me that they just win a bit more than they lose, play a lot of hands, and treat everything with pretty even money, so they're never overexposed in any one place.

huffmsa 7y ago
I think I have the math right here, but let's say you start with > Capital = $100 1 time a day 5 days a week 50 weeks a year, you're going to take your capital and place that many $1 bets with it. Let's say you net +1% on your deployed capital ever day. After 250 rounds, you have $1215 in the bank. Again, correct the math if I'm wrong. But scale that down to 0.57%, which is the win rate I saw, and they're making ~$600/yr, which is the stated average return. Seems legit
- papln 7y ago
  > Let's say you net +1% on your deployed capital ever day. That's the "..." step in "1 steal underpants, 2 ..., 3 Profit!"
  - huffmsa 7y ago
    Well yeah. But that's what they've figured out. It's unlikely, but not impossible.
- texasbigdata 7y ago
  The book has more detail. They raised capital in the beginning.
papln 7y ago
Enron only collapsed because they intentionally destabilized major public-facing national security infrastructure (retail energy markets), and they were incredibly brazen and sloppy about it. If they didn't make as large bets on collateral damage, and they acted with professionalism, they would have been fine.
- huffmsa 7y ago
  See what you said? They made too many large, overleveraged bets. Blew them up

yasp 7y ago

My mind went to the same place.

thomak 7y ago

Financial experts aren’t stumped. The article found one guy who’s trying to get attention, but in general, folks are both impressed and pretty sure it’s real.

macspoofing 7y ago
You have one fund that is an extreme outlier in performance over decades (!!) that nobody can explain and yet 'financial experts' aren't stumped and are 'pretty sure it's real'?
SirLJ 7y ago
This was no expert, but an academic... those who can't do, teach...
- ceejayoz 7y ago
  Yeah, those useless academics. https://en.wikipedia.org/wiki/List_of_Nobel_laureates_by_university_affiliation https://en.wikipedia.org/wiki/List_of_Nobel_laureates_by_uni...
  - SirLJ 7y ago
    any successful academic in economics making money in the stock market? Or I am missing something? Maybe a Nobel winner from Chicago?
    - ceejayoz 7y ago
      No, for the same reasons the soldier pressing the button at a nuclear test doesn't get the Nobel Prize for doing so.
      - SirLJ 7y ago
        like the reasons for Nobel for Fama for the wrong theory...
    - 7y ago

ajmurmann 7y ago

Could they been moving money from their open to investments , less successful funds to the medallion fund? Maybe even thought the market via trades?

Noughmad 7y ago
This makes a lot of sense. Sacrificing a percent of profit from other funds won't make that much of a different in the minds of possible investors, but managing a fantastically high fund must be a good advertisement.
RookyNumbas 7y ago
No, the medallion fund existed for 20 years before these other funds were opened.
- papln 7y ago
  Was Medallion fund Rentec's only business, or was there other business they could skim from?
  - RookyNumbas 7y ago
    James Simons had a funds for tech startups. But it wasn't nearly large enough to support the kind of profits that happened.

toss1 7y ago

OK, what behaves like a Ponzi scheme that lasts too long? Money Laundering of assets on a national scale, e.g., for oligarchs who have taken 95% of a nations' wealth. Their biggest problem is to get it "legitimately" into the international money system. If the fund owners have really discovered a technological "secret sauce", why isn't it working in their other funds? Not a conclusion, but a valid open question.

xt00 7y ago
Closed to outside funds in 1993 (shortly after ussr collapse), returns after fees (and paying everybody as well at the firm) are above 50%, assets of 10 billion and anything above the 10 billion gets paid out every year.. so roughly 5 billion plus gets paid out every year? I mean, as a wise man said “I want to believe” but yea feels / smells like you said.. oligarch money laundering... 5billion in clean money every year.. not bad..

crawftv 7y ago

The reason is that they are highly levered with many small short term trades. >dealbook.nytimes.com/2014/07/21/senate-inquiry-faults-hedge-funds-tax-strategy/https://dealbook.nytimes.com/2014/07/21/senate-inquiry-faults-hedge-funds-tax-strategy/ https://dealbook.nytimes.com/2014/07/21/senate-inquiry-fault... “Jul 21, 2014 Within these complicated financial structures, Renaissance Technologies was able to borrow as much as $17 for every $1 in the account.”

jandrewrogers 7y ago

Even without knowing the full details, their returns are quite plausible if you have less speculative knowledge of their business. The challenge for most hedge funds is that any "edge" they find decays over time, often quickly, which leaves them scrambling to find a new edge that will allow them to outperform the market. Most hedge funds go to a lot of effort to preserve an edge to the extent they can. Renaissance focused on finding and developing novel mathematics that can be exploited to find an edge, some of which is extremely esoteric and unique, and then massively automating that. Consequently, they can find more new edges before breakfast than some hedge funds find all year. The real effect is that they don't need to milk a dying edge for returns because they are constantly generating new ones, and they can pick the best of the bunch at any point in time. The investment side of the business is mechanical. Their recruiting has reflected their deep interest in novel theoretical approaches to edge discovery. In a sense, they are a higher order abstraction of a more typical hedge fund.

stanferder 7y ago
I find it really hard to believe that the fund can be generating returns so consistently by pursuing a variety of different strategies over time. It seems very unlikely that Renaissance/Medallion constantly finds these things, whereas other operations almost never do. The conspiracy theorist in the back of my brain thinks that Renaissance/Medallion hires a lot of eggheads so they can plausibly claim to keep finding mathematical and operational edges, but the actual money-making strategy might be something else entirely.
- RookyNumbas 7y ago
  These eggheads (very) occasionally move to other firms and see similar returns. Of course rentech then sues those other firms for all the profits they make. And they win.
  - chollida1 7y ago
    > These eggheads (very) occasionally move to other firms and see similar returns. Of course rentech then sues those other firms for all the profits they make. And they win. Not true at all as far as I know. Name one member of RenTech that went else where and made similar returns; I don't think you can because its never happened as far as I know. The closest I can think of is Pavel Volfbeyn and Alexander Belopolsky leaving to join the Millenium fund. Their performance there was so poor even not comparing their performance to what RenTech did so much so that they were let go even after Millenium settled the lawsuit with RenTech that allowed them to stay at Millenium.

texasbigdata 7y ago

No one is stumped, they're not making any external claim and they are not raising capital. This type of drive by analysis is the equivalent of "will Brad and jennifer get back together" at the grocery store check out line.