|Headquarters||East Setauket, New York, United States|
Institutional Equities Fund
Institutional Diversified Alpha
|AUM||US $ 65 Billion (2015)|
Number of employees
Renaissance Technologies LLC is an American investment management firm founded by James Simons, an award-winning mathematician and former Cold War code breaker, which specializes in systematic trading using only quantitative models derived from mathematical and statistical analyzes. Renaissance is one of the first highly successful “quant hedge funds” — hedge funds that rely heavily upon powerful computers and sophisticated mathematics to guide investment strategies — and was run by Simons until his retirement in late 2009. The company is now jointly run by Peter Brown and Robert Mercer, two leading computer scientists specializing in computational linguistics who joined Renaissance in 1993 from IBM Research. Simons continues to play a role at the firm as non-executive chairman and remains invested in its funds, particularly the secretive and consistently profitable black-box strategy known as Medallion.
The firm is an early pioneer of quantitative trading, where researchers tap decades of diverse data in its vast petabyte-scale data warehouse to assess statistical probabilities for the direction of securities prices in any given market. Experts attribute the breadth of data on events peripheral to financial and economic phenomena that Renaissance takes into account, and the firm's ability to manipulate enormous amounts of data by deploying highly efficient and scalable technological architectures for computation and execution, for its consistent success in beating the markets. In many ways, Renaissance Technologies, along with a few other firms, has been synthesizing terabytes of data daily and extracting information signals from petabytes of data for almost two decades now, well before big data and data analytics caught the imagination of mainstream technology.
Renaissance has roughly $65 billion worth of assets under management, most of which belong to employees of the firm. Renaissance's most famous portfolio, the Medallion fund, is widely considered to be one of the most successful hedge funds ever that has averaged a 71.8% annual return, before fees, from 1994 through mid-2014. This fund is closed to outside investors since 1993 and is available only to current and past employees and their families. The firm bought out the last investor in the Medallion fund in 2005 and the investor community has not seen its returns since then. About 100 of Renaissance's 275 or so employees are what it calls “qualified purchasers”, meaning they generally have at least $5 million in assets to invest. The remaining are "accredited investors", generally worth at least $1 million. It offers two portfolios to outside investors - Renaissance Institutional Equities Fund (RIEF) and Renaissance Institutional Diversified Alpha (RIDA) - and both of them sport double digit returns, handily beating rivals.
Renaissance is a firm run by and for scientists, employing preferably those with non-financial backgrounds for quantitative finance research like mathematicians, statisticians, pure and experimental physicists, astronomers, and computer scientists. Wall Street experience is frowned on and a flair for science is prized. It is a widely held belief within Renaissance that the herdlike mentality among business school graduates is to blame for poor investor returns. About a third of its about 300 or so employees have PhDs. Renaissance engages roughly 150 researchers and computer programmers, half of whom have PhDs in scientific disciplines, at its tranquil 50-acre East Setauket campus in Long Island, New York, which is near the State University of New York at Stony Brook. Abel Prize winning mathematician Isadore Singer referred to Renaissance's East Setauket office as the best physics and mathematics department in the world.
The firm’s administrative and back-office functions are handled from its Manhattan office in New York City. Renaissance is intensely secretive about the inner workings of its business and very little is known about it. The firm is quite famous for its ability to recruit and retain top scientific talent, for having a personnel turnover that's nearly non-existent, and for needing its researchers to agree to stringent intellectual property obligations by signing iron clad non-compete and non-disclosure agreements.
James Simons founded Renaissance Technologies following a decade in academia as the Chair of the Department of Mathematics at Stony Brook University. Simons is a 1976 recipient of the Oswald Veblen Prize of the American Mathematical Society, which is geometry’s highest honor. He is a very renowned mathematician within the scientific community for his work known as Chern–Simons theory, which today define many esoteric aspects of modern physics, including advanced theories of how invisible fields like those of gravity interact with matter to produce everything from superstrings to black holes.
In 1978 Simons decided to leave academia and go into business, starting a hedge fund management firm in a Long Island strip mall called Monemetrics. At first, it didn’t occur to Simons to apply mathematics to his business, which primarily traded currencies in the beginning, but he gradually realized that it should be possible to make mathematical models of the data he was collecting. Simons started recruiting some of the best mathematicians and data-modeling experts from his days at the Institute of Defense Analyses (IDA) and Stony Brook. His first recruit was Leonard Baum, a crpytanalyst from IDA who was also the co-author of the Baum–Welch algorithm. But when Baum abandoned the idea of trading with mathematical models and took to fundamental trading , Simons brought in pioneering algebraist James Ax from Cornell University. Ax expanded Baum's models for trading currencies to cover any commodity future and subsequently Simons set up Ax with his own trading account, Axcom Ltd., which eventually gave birth to the wildly profitable fund — Medallion. Monemetrics’ name was changed to Renaissance Technologies in 1982. During the 1980s, Ax and his researchers improved on Baum's models and used them to explore correlations from which they could profit. The mathematical models the company developed worked better and better each year, and by 1988, Simons had decided to base the company’s trades entirely on the models. That same year, Simons and Ax started a hedge fund and christened it Medallion in honor of the math awards that they had won.
By April 1989, peak-to-trough losses had mounted to about 30%. Ax had accounted for such a drawdown in his models and pushed to keep trading. Simons wanted to stop to research what was going on. After a brief standoff, Simons pulled rank and Ax left. Simons turned to Elwyn Berlekamp to run Medallion from Berkeley, California. In 1985, Ax had persuaded Simons to let him move Axcom to Huntington Beach, California. A consultant for Axcom whom Simons had first met at the IDA, Berlekamp had bought out most of Ax's stake in Axcom and became its CEO. He worked with Sandor Straus, Jim Simons and another consultant, Henry Laufer, to overhaul Medallion's trading system during a six-month stretch. In 1990, Berlekamp led Medallion to a 55.9% gain, net of fees — and then returned to teaching math at UC Berkeley after selling out to Jim Simons at six times the price for which he had bought his Axcom interests 16 months earlier. Straus took the reins of Medallion's revamped trading system and Medallion returned 39.4% in 1991, 34% in 1992 and 39.1% in 1993, according to Medallion annual reports.
The computer-driven Medallion fund has made an average of 34% a year after fees since its launch over 20 years ago. Since the firm bought out the last investor in the Medallion fund in 2005, there's no information on the fund's returns since then. Out of the 148 months that elapsed between January 1993 and April 2005, Medallion only had 17 monthly losses. Out of 49 quarters in the same time period, Medallion only posted three quarterly losses. Medallion has had no loss-making years apart from its only one in 1989 during the 1993 - 2005 period.
For more than twenty years, Simons' Renaissance Technologies hedge fund, which trades in markets around the world, has employed complex mathematical models to analyze and execute trades, many of them automated. Renaissance uses computer-based models to predict price changes in easily traded financial instruments. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions. Some also attribute Renaissance performance to employing financial signal processing techniques such as pattern recognition. The Quants describes the hiring of speech recognition experts, many from IBM, including the current leaders of the firm.
Like many other quantitative funds, their RIE Fund had difficulty with the higher volatility environment that persisted throughout the end of the summer of 2007. According to an 10 August (2007) article in Bloomberg by Katherine Burton, "James Simons's $29 billion Renaissance Institutional Equities Fund fell 8.7% in August 2007 when his computer models used to buy and sell stocks were overwhelmed by securities' price swings. The two-year-old quantitative, or 'quant', hedge fund now has declined 7.4 percent for the year. Simons said other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities."
On 25 September 2008, Renaissance wrote a comment letter to the Securities and Exchange Commission, discouraging them from implementing a rule change that would have permitted the public to access information regarding institutional investors' short positions, as they can currently do with long positions. The company cited a number of reasons for this, including the fact that "institutional investors may alter their trading activity to avoid public disclosure".
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