5 ms·

>Renaissance is simply better than anyone in the world at finding the markets where traders are willing to pay the highest premiums for liquidity, and providing

>Renaissance is simply better than anyone in the world at finding the markets where traders are willing to pay the highest premiums for liquidity, and providing it in a timely and measured dose that ensures they skim the cream off the profit opportunity. Why are they better? This still requires the same kind of explanation as 'they are simply better at investing than anyone in the world'

peteradio 7y ago
It could be an incumbent position that is just not possible to overthrow.
- onetimemanytime 7y ago
  Ok, new Medallion-like fund accepts lower returns, meaning its partners get better deals then under Medallion. Why wouldn't they leave Medallion? This is since 1988 apparently. I don't buy that they are the "smartest people" or that they are doing something so amazing that others don't get.
  - papln 7y ago
    Medallion is for employees of Renaissance. It doesn't have customers/partners. If you accept that Renaissance is good at what it does, it's simple to posit that Renaiisance reserves its most profitable activities for its own employees as preferred customers/partners, as a compensation vehicle and a PR/recruiting tactic to make Renaissance look more impressive. Medallion is like Google's "X", in that sense. This explanation shows why Medallion's high returns are possible, and also why Medallion not actually better than Renaissance's overall average performance (that is, could not be replicated as an indepdent spin of without the rest of Renaissance to extract value from), beyond an acconting illusion to make ordinary wages look like investing. It's not at all surprising that this could be how Medallian works, since that's just an application hedging, which is Renaissance's core business.
    - jkaptur 7y ago
      I think that the "partners" in that comment refer to trading counterparties.
    - onetimemanytime 7y ago
      as @jkaptur said, with "partners" I meant their trading partners, clients, service providers. The OP suggested that maybe Medallion has an advantage and kept it. I suggested that a new hedge fund would pay the Medallion partners more and accept less in profit than Medallion.
  - peteradio 7y ago
    Because they would be litigated to hell. It might not even be that employees are key to this hypothetical incumbency.
logicchains 7y ago
>Why are they better? Possible explanation: there aren't any other firms founded by as great mathematicians as the founders of Renaissance. I saw a quote online attributed to them, something like: "We hire the A-grade mathematicians. Most other firms hire B and C grade mathematicians, and don't even know the A grade exists". This fits my experience, as a D-grade mathematician working in finance. Never heard of significant mathematical prizewinning researchers working at any of the firms I know (lots of maths olympians, but there's a huge difference between winning a maths olympiad and conducting groundbreaking mathematical research).
- dogman144 7y ago
  Haha this was basically LTCM's publicly stated approach, to be fair.
  - FiberBundle 7y ago
    They were economists... Which might explain the outcome.
- hogFeast 7y ago
  This is only half of it. If you look at all their early employees, Robert Frey/James Patterson have profiles, they were people who knew the maths AND knew how to apply it. If you look at AHL, they have lots of people who know the maths. They have their own institute at Oxford ffs (the number of people who don't have PHds from Oxbridge there is small), and they have crap performance, year-in, year-out. It is a typical flaw of human nature to assume that when someone else does something extraordinary that they have some secret knowledge you don't. People on here talking about discrete topology and all kinds of craziness...read the book, one of the big early advantages that RenTech had was they sent some guy down to the Fed to transcribe by hand data that no-one else had. Another example is their stat arb strategy didn't work for years, until they worked out how to get good execution. I am not saying that it is only this but if you read the book, there are several instances where RenTech try to apply something complex and it doesn't work...and the success they have is after doing something simple, marginally better than anyone else...again, to a certain kind of person, this simplicity is offensive but it is also why most people with technical backgrounds get destroyed by the market. Also, one thing that is kind of unclear. Simons had almost nothing to do with the perf. By the early 90s, he wasn't personally active anymore (he was spending most of his time on venture capital). The step change was hiring Brown and Mercer (again, two guys who clearly knew the maths but had spent most of their time in industry). Ppl assume that Simons is in the boiler room doing all kinds of crazy technical stuff...he wasn't (most of the time that he ran the fund, it didn't do well at all).
jandrewrogers 7y ago
Many years ago, Jim Simons took an interest in my theoretical work on discrete topology (still unpublished) in the context of this fund. Among other things, this research provided a powerful mechanism for finding relationships in data that are effectively intractable to discover by more conventional means. Many of the mathematicians associated with Renaissance at the time had diverse and impressive theoretical backgrounds, all focused on different areas of mathematics that could loosely be applied to discovery of signals that, importantly, would be difficult to find via more conventional statistical analysis. My immediate impression was that this was not a coincidence. Having talked to many other hedge funds over the years, I've come to realize that this is even more anomalous than it seemed at the time. While you will sometimes find a person on the cutting edge of these kinds of mathematics at other funds it tends to be an isolated case. Many hedge funds have boringly simplistic approaches to signal discovery. People overestimate how widely distributed and available this kind of expertise is. Renaissance are not better at investing per se, they are better at signal discovery than anyone else and invested heavily in maintaining that (meta-)edge over the years, the investing part is relatively mechanical after the signal is discovered.
- duncancarroll 7y ago
  I can understand that there are a limited number of people who can understand and apply the math necessary, but not that it could remain proprietary for 30 years. Usually if a company has secret sauce, someone will leave and spin off on their own. Even Google can't retain everyone. So unless I'm missing something, any explanation has to account for why this hasn't occurred here.
  - grandinj 7y ago
    They pay waaaaaaay more to keep their people. And there are powerful incentives at work - competition would seriously diminish their rewards.
  - alasdair_ 7y ago
    Very tight NDAs (that they actually litigate) coupled with enforceable non-competes ("garden leave" where they pay your salary for, say, a year as part of the deal before you can leave for a competitor) is part of it. Really high comp is another. Perhaps a bigger deal is the fact that they actively return money over the roughly $10BN fund value, implying that the strategy doesn't work past that point. A competitor would then be stuck in a zero-sum game battling for a slice of a fixed pie rather than being able to grow the market.

peteradio 7y ago

It could be an incumbent position that is just not possible to overthrow.

onetimemanytime 7y ago
Ok, new Medallion-like fund accepts lower returns, meaning its partners get better deals then under Medallion. Why wouldn't they leave Medallion? This is since 1988 apparently. I don't buy that they are the "smartest people" or that they are doing something so amazing that others don't get.
- papln 7y ago
  Medallion is for employees of Renaissance. It doesn't have customers/partners. If you accept that Renaissance is good at what it does, it's simple to posit that Renaiisance reserves its most profitable activities for its own employees as preferred customers/partners, as a compensation vehicle and a PR/recruiting tactic to make Renaissance look more impressive. Medallion is like Google's "X", in that sense. This explanation shows why Medallion's high returns are possible, and also why Medallion not actually better than Renaissance's overall average performance (that is, could not be replicated as an indepdent spin of without the rest of Renaissance to extract value from), beyond an acconting illusion to make ordinary wages look like investing. It's not at all surprising that this could be how Medallian works, since that's just an application hedging, which is Renaissance's core business.
  - jkaptur 7y ago
    I think that the "partners" in that comment refer to trading counterparties.
  - onetimemanytime 7y ago
    as @jkaptur said, with "partners" I meant their trading partners, clients, service providers. The OP suggested that maybe Medallion has an advantage and kept it. I suggested that a new hedge fund would pay the Medallion partners more and accept less in profit than Medallion.
- peteradio 7y ago
  Because they would be litigated to hell. It might not even be that employees are key to this hypothetical incumbency.

logicchains 7y ago

>Why are they better? Possible explanation: there aren't any other firms founded by as great mathematicians as the founders of Renaissance. I saw a quote online attributed to them, something like: "We hire the A-grade mathematicians. Most other firms hire B and C grade mathematicians, and don't even know the A grade exists". This fits my experience, as a D-grade mathematician working in finance. Never heard of significant mathematical prizewinning researchers working at any of the firms I know (lots of maths olympians, but there's a huge difference between winning a maths olympiad and conducting groundbreaking mathematical research).

dogman144 7y ago
Haha this was basically LTCM's publicly stated approach, to be fair.
- FiberBundle 7y ago
  They were economists... Which might explain the outcome.
hogFeast 7y ago
This is only half of it. If you look at all their early employees, Robert Frey/James Patterson have profiles, they were people who knew the maths AND knew how to apply it. If you look at AHL, they have lots of people who know the maths. They have their own institute at Oxford ffs (the number of people who don't have PHds from Oxbridge there is small), and they have crap performance, year-in, year-out. It is a typical flaw of human nature to assume that when someone else does something extraordinary that they have some secret knowledge you don't. People on here talking about discrete topology and all kinds of craziness...read the book, one of the big early advantages that RenTech had was they sent some guy down to the Fed to transcribe by hand data that no-one else had. Another example is their stat arb strategy didn't work for years, until they worked out how to get good execution. I am not saying that it is only this but if you read the book, there are several instances where RenTech try to apply something complex and it doesn't work...and the success they have is after doing something simple, marginally better than anyone else...again, to a certain kind of person, this simplicity is offensive but it is also why most people with technical backgrounds get destroyed by the market. Also, one thing that is kind of unclear. Simons had almost nothing to do with the perf. By the early 90s, he wasn't personally active anymore (he was spending most of his time on venture capital). The step change was hiring Brown and Mercer (again, two guys who clearly knew the maths but had spent most of their time in industry). Ppl assume that Simons is in the boiler room doing all kinds of crazy technical stuff...he wasn't (most of the time that he ran the fund, it didn't do well at all).

jandrewrogers 7y ago

Many years ago, Jim Simons took an interest in my theoretical work on discrete topology (still unpublished) in the context of this fund. Among other things, this research provided a powerful mechanism for finding relationships in data that are effectively intractable to discover by more conventional means. Many of the mathematicians associated with Renaissance at the time had diverse and impressive theoretical backgrounds, all focused on different areas of mathematics that could loosely be applied to discovery of signals that, importantly, would be difficult to find via more conventional statistical analysis. My immediate impression was that this was not a coincidence. Having talked to many other hedge funds over the years, I've come to realize that this is even more anomalous than it seemed at the time. While you will sometimes find a person on the cutting edge of these kinds of mathematics at other funds it tends to be an isolated case. Many hedge funds have boringly simplistic approaches to signal discovery. People overestimate how widely distributed and available this kind of expertise is. Renaissance are not better at investing per se, they are better at signal discovery than anyone else and invested heavily in maintaining that (meta-)edge over the years, the investing part is relatively mechanical after the signal is discovered.

duncancarroll 7y ago
I can understand that there are a limited number of people who can understand and apply the math necessary, but not that it could remain proprietary for 30 years. Usually if a company has secret sauce, someone will leave and spin off on their own. Even Google can't retain everyone. So unless I'm missing something, any explanation has to account for why this hasn't occurred here.
- grandinj 7y ago
  They pay waaaaaaay more to keep their people. And there are powerful incentives at work - competition would seriously diminish their rewards.
- alasdair_ 7y ago
  Very tight NDAs (that they actually litigate) coupled with enforceable non-competes ("garden leave" where they pay your salary for, say, a year as part of the deal before you can leave for a competitor) is part of it. Really high comp is another. Perhaps a bigger deal is the fact that they actively return money over the roughly $10BN fund value, implying that the strategy doesn't work past that point. A competitor would then be stuck in a zero-sum game battling for a slice of a fixed pie rather than being able to grow the market.