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IIRC his fund averaged around 30% gains per year, every year, over 30 years. (I'm going from memory here, too lazy to look it up). That is just such an unbeliev

IIRC his fund averaged around 30% gains per year, every year, over 30 years. (I'm going from memory here, too lazy to look it up). That is just such an unbelievable performance number.

datadrivenangel 2y ago
Aren't there some shenanigans with those numbers around their larger funds not doing as well? It's easy to make a few high margin dollars, hard to make a lot of high margin dollars.
- makestuff 2y ago
  They limited the fund size so employees frequently got distributions from the fund instead of just rolling over their investments. However, the distributions were still in the millions of dollars. They also got into some tax trouble with uncle sam and had to pay 7b in back taxes (https://www.wsj.com/articles/james-simons-robert-mercer-others-at-renaissance-to-pay-7-billion-to-settle-tax-probe-11630617328 https://www.wsj.com/articles/james-simons-robert-mercer-othe...)
- danielmarkbruce 2y ago
  depends on your definition of "few". Rentech made a "few" for very large "few".
  - paulpauper 2y ago
    lol . Only made tens of billion. What a failure.
agumonkey 2y ago
I'd still wish to have details on this (I too heard of similar numbers for his fund before), because in my newb eyes .. such returns would mean they could absorb a huge chunk of the planet liquidity.
- oldpersonintx 2y ago
  [dead]
- tomp 2y ago
  No, because such returns aren't scalable. According to industry rumors, RenTech is somewhere between $10-20bn AUM (assets under management, i.e. the capital used for trading), and the profit that they make, they can't reinvest, they have to take it out as profit.
  - jamiek88 2y ago
    How come? Why do they have to take the profits out and can’t compound it? I know literally zero about this stuff!
    - WrongAssumption 2y ago
      When you scale up too much it creates market impact that affects returns. You basically become too much of the market.
    - tomp 2y ago
      The simplistic explanation is, if you're doing arbitrage - i.e. "fixing market mispricing", there's only so much arbitrage you can do before you fix the price... This is of course a completely theoretical proposition, because in reality you don't know what the "fair price" is. You don't even have probabilities, because those are also unobservable, you only see one version of "history". In practice, what happens is that if you trade "too much", "shit goes wrong". Both of these things require empirical estimation and are easy to get wrong. The most obvious is the market liquidity, which you can observe at e.g. BitStamp TradeView [1] - there's only so many orders at a given price, so the more you trade, the worse price you get (the average/marginal trade). No professional of course trades like that, especially not HFTs, but similar problems happen at every scale - you're competing with other traders, they might have better information, there's limited amount of stock in the market, the edge/alpha/expected profit you can earn decays over time as the price moves, if you trade too much you move the market and inform other participants who can then trade against you, ... [1] https://www.bitstamp.net/market/tradeview/ https://www.bitstamp.net/market/tradeview/
chollida1 2y ago
it was 62% per year for 33 years.
- tombert 2y ago
  That is insane. Like, completely insane, shouldn't-be-possible insane. I guess the theoretical limit to how much money you could make in the market is "the sum of all volatility", but I wonder how realistically possible it would be to even dream of beating 62% yearly.
  - chronic640201 2y ago
    Mathematics can only take you so far. At the end of the day, people run the exchanges. Not math. The returns of modern HFT market makers are even higher. With their unfair “business” advantages such as PFOF, privileged dark pool and block trade access, and military internet infrastructure. Think 60%+, per year, at least. Over 10-20 years, of course.
    - tombert 2y ago
      That doesn't surprise me; doesn't Citadel keep the entire bid-ask spread for every transaction they facilitate? Presumably between that and arbitrage opportunities that pop up from option contracts alone, I have no doubt that market makers clean up pretty well. They wouldn't hire me either!
      - eru 2y ago
        Citadel has plenty of competition, eg from Jane Street. The markets for market making are some of the most efficient markets on the planet.
    - eru 2y ago
      > The returns of modern HFT market makers are even higher. The returns of a child's lemonade stand are even higher... Market makers and lemonade stands are mostly about paying for labour (and ideas etc, but let's call that 'labour', too). Capital requirements are rather low. So taking all the profit and attributing it to capital returns tends to give you weird numbers.
tdullien 2y ago
Important to keep in mind that these returns ceased to be compounding quickly: they restarted from scratch 10bn each year to score 30%. Successful quant stratégies tend to hit capacity limits...
- iamgopal 2y ago
  Their success is limited by what other party ready to lose, most of the time, these all are zero sum games.
  - SCM-Enthusiast 2y ago
    their success is limited by how much money they can move. When you are moving that kind of money through quant strats you start to move the market. It's easy to capture a triangle arb with 20k, almost impossible to do it with 10B, because by the time you enter and exit the trade the arb no longer exists or you were moving the market against yourself with your own trades. One of the genious thing that rentech did was long out of the money bonds, and short newly issued bonds. Seems like such a simple strat, but when you crank up the leverage you can make alot of money.
  - eru 2y ago
    Depends on how you look at it. Eg selling insurance can be seen as a zero sum game, but it's a genuinely useful product for people, even when the expected value for them is negative. It works, because utility is not strictly proportional to money. Similarly, market making delivers liquidity-on-demand for a fee.
    - NhanH 2y ago
      Insurance is positive-sum because the value-generating enterprise (the buyer) gets to continue generating value after the unexpected thing happen. The alternatives is that the value creation process just stop. It is only seemingly zero-sum for the point in time when the accident happens and one side has to pay for the other.
      - 2y ago

IIRC his fund averaged around 30% gains per year, every year, over 30 years. (I'm going from memory here, too lazy to look it up). That is just such an unbelievable performance number.

datadrivenangel 2y ago

Aren't there some shenanigans with those numbers around their larger funds not doing as well? It's easy to make a few high margin dollars, hard to make a lot of high margin dollars.

makestuff 2y ago
They limited the fund size so employees frequently got distributions from the fund instead of just rolling over their investments. However, the distributions were still in the millions of dollars. They also got into some tax trouble with uncle sam and had to pay 7b in back taxes (https://www.wsj.com/articles/james-simons-robert-mercer-others-at-renaissance-to-pay-7-billion-to-settle-tax-probe-11630617328 https://www.wsj.com/articles/james-simons-robert-mercer-othe...)
danielmarkbruce 2y ago
depends on your definition of "few". Rentech made a "few" for very large "few".
- paulpauper 2y ago
  lol . Only made tens of billion. What a failure.

agumonkey 2y ago

I'd still wish to have details on this (I too heard of similar numbers for his fund before), because in my newb eyes .. such returns would mean they could absorb a huge chunk of the planet liquidity.

oldpersonintx 2y ago
[dead]
tomp 2y ago
No, because such returns aren't scalable. According to industry rumors, RenTech is somewhere between $10-20bn AUM (assets under management, i.e. the capital used for trading), and the profit that they make, they can't reinvest, they have to take it out as profit.
- jamiek88 2y ago
  How come? Why do they have to take the profits out and can’t compound it? I know literally zero about this stuff!
  - WrongAssumption 2y ago
    When you scale up too much it creates market impact that affects returns. You basically become too much of the market.
  - tomp 2y ago
    The simplistic explanation is, if you're doing arbitrage - i.e. "fixing market mispricing", there's only so much arbitrage you can do before you fix the price... This is of course a completely theoretical proposition, because in reality you don't know what the "fair price" is. You don't even have probabilities, because those are also unobservable, you only see one version of "history". In practice, what happens is that if you trade "too much", "shit goes wrong". Both of these things require empirical estimation and are easy to get wrong. The most obvious is the market liquidity, which you can observe at e.g. BitStamp TradeView [1] - there's only so many orders at a given price, so the more you trade, the worse price you get (the average/marginal trade). No professional of course trades like that, especially not HFTs, but similar problems happen at every scale - you're competing with other traders, they might have better information, there's limited amount of stock in the market, the edge/alpha/expected profit you can earn decays over time as the price moves, if you trade too much you move the market and inform other participants who can then trade against you, ... [1] https://www.bitstamp.net/market/tradeview/ https://www.bitstamp.net/market/tradeview/

chollida1 2y ago

it was 62% per year for 33 years.

tombert 2y ago
That is insane. Like, completely insane, shouldn't-be-possible insane. I guess the theoretical limit to how much money you could make in the market is "the sum of all volatility", but I wonder how realistically possible it would be to even dream of beating 62% yearly.
- chronic640201 2y ago
  Mathematics can only take you so far. At the end of the day, people run the exchanges. Not math. The returns of modern HFT market makers are even higher. With their unfair “business” advantages such as PFOF, privileged dark pool and block trade access, and military internet infrastructure. Think 60%+, per year, at least. Over 10-20 years, of course.
  - tombert 2y ago
    That doesn't surprise me; doesn't Citadel keep the entire bid-ask spread for every transaction they facilitate? Presumably between that and arbitrage opportunities that pop up from option contracts alone, I have no doubt that market makers clean up pretty well. They wouldn't hire me either!
    - eru 2y ago
      Citadel has plenty of competition, eg from Jane Street. The markets for market making are some of the most efficient markets on the planet.
  - eru 2y ago
    > The returns of modern HFT market makers are even higher. The returns of a child's lemonade stand are even higher... Market makers and lemonade stands are mostly about paying for labour (and ideas etc, but let's call that 'labour', too). Capital requirements are rather low. So taking all the profit and attributing it to capital returns tends to give you weird numbers.

tdullien 2y ago

Important to keep in mind that these returns ceased to be compounding quickly: they restarted from scratch 10bn each year to score 30%. Successful quant stratégies tend to hit capacity limits...

iamgopal 2y ago
Their success is limited by what other party ready to lose, most of the time, these all are zero sum games.
- SCM-Enthusiast 2y ago
  their success is limited by how much money they can move. When you are moving that kind of money through quant strats you start to move the market. It's easy to capture a triangle arb with 20k, almost impossible to do it with 10B, because by the time you enter and exit the trade the arb no longer exists or you were moving the market against yourself with your own trades. One of the genious thing that rentech did was long out of the money bonds, and short newly issued bonds. Seems like such a simple strat, but when you crank up the leverage you can make alot of money.
- eru 2y ago
  Depends on how you look at it. Eg selling insurance can be seen as a zero sum game, but it's a genuinely useful product for people, even when the expected value for them is negative. It works, because utility is not strictly proportional to money. Similarly, market making delivers liquidity-on-demand for a fee.
  - NhanH 2y ago
    Insurance is positive-sum because the value-generating enterprise (the buyer) gets to continue generating value after the unexpected thing happen. The alternatives is that the value creation process just stop. It is only seemingly zero-sum for the point in time when the accident happens and one side has to pay for the other.
    - 2y ago