Author Topic: Jim Simons rennaisance technologies - is value învesting not the only way ?  (Read 7737 times)

sleepydragon

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simons is an anomaly. a quant who caters to quants and who is willing to give them everything they ask for.  only a quant would do that, and most firms aren't run by quants.  I saw a video of simons explaining his keys to success, and the one thing that struck me was when he said he gives his employees the best infrastructure there is.  if you think about it, how do you attract and retain great employees?  with a tough NDA and noncompete? no, with a great organization that says yes to any reasonable employee request.  harkens back to his days at the think tank where everyone could do 50% of their time in whatever they wanted.  if one realizes that if you give employees the massive computing power, massive data access and supportive culture they want, they will stay...and make damn good models.  they may even have a good cafeteria...

He also provide permanent employment. Nobody ever got fired from there I think.


scorpioncapital

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https://www.marketwatch.com/amp/story/guid/EC683D1E-3939-11EA-9DD7-1C195141DE2B

I wonder if tepper's 27 year return of 25 percent referenced in this article is also compounded or straight annual return without reinvestment

Kaegi2011

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One thing mentioned in the book I thought was telling was Simons’ Madoff investment.  Madoff built his scheme around the idea he could deliver steady 12 to 13% returns.  So what is Simons doing withdrawing from his fund, which is earning 66%, and investing in a fund earning a purported 13%?  If anyone could/should have been reinvesting in Medallion it was Simons.  And this wasn’t when he was running billions of dollars; this was in the early 90s when the fund had less than $100 million in capital.

It’s tough to come up with a valid compounded return figure for Medallion given that (a) nearly all the fund’s earnings were distributed and (b) the guy running the fund was reinvesting his distributions at a much lower rate (even when the fund was small).

I knew a guy who I worked with and he ended up on the value investing side of the RenTech empire (name escapes me at the moment).  He told me that one of the attractions of the job was the ability to put (limited) capital into Medallion, to which I asked isn't it weird that the benefit of working at a hedge fund is the ability to invest in another fund?  Don't they want to align interests?!  That's when I learned that Medallion doesn't compound - not sure why but it's constrained to ~$5bn (at least as of a while ago). 

TwoCitiesCapital

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One thing mentioned in the book I thought was telling was Simons’ Madoff investment.  Madoff built his scheme around the idea he could deliver steady 12 to 13% returns.  So what is Simons doing withdrawing from his fund, which is earning 66%, and investing in a fund earning a purported 13%?  If anyone could/should have been reinvesting in Medallion it was Simons.  And this wasn’t when he was running billions of dollars; this was in the early 90s when the fund had less than $100 million in capital.

It’s tough to come up with a valid compounded return figure for Medallion given that (a) nearly all the fund’s earnings were distributed and (b) the guy running the fund was reinvesting his distributions at a much lower rate (even when the fund was small).

I knew a guy who I worked with and he ended up on the value investing side of the RenTech empire (name escapes me at the moment).  He told me that one of the attractions of the job was the ability to put (limited) capital into Medallion, to which I asked isn't it weird that the benefit of working at a hedge fund is the ability to invest in another fund?  Don't they want to align interests?!  That's when I learned that Medallion doesn't compound - not sure why but it's constrained to ~$5bn (at least as of a while ago).

It doesn't compound b/c they leverage that stuff like 20-30x to make the returns they do. Much easier to leverage $5B up to $100B then it is to leverage $100B up to $2 trillion. Makes the economics/returns better too than simply letting it compound up to $100B and losing the leverage.

Kaegi2011

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It doesn't compound b/c they leverage that stuff like 20-30x to make the returns they do. Much easier to leverage $5B up to $100B then it is to leverage $100B up to $2 trillion. Makes the economics/returns better too than simply letting it compound up to $100B and losing the leverage.

I get it - wasn't trying to add insight as much as sharing an anecdote on what he/they do with their capital that they cannot put into Medallion.  Also, your example is a bit extreme.  Seems like if they can do those types of returns at $5bn (assumption), how much degredation happens when it's $6bn, or $7bn, or $10bn?  Nobody except people who work there knows why the limit is what it is. 

TwoCitiesCapital

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It doesn't compound b/c they leverage that stuff like 20-30x to make the returns they do. Much easier to leverage $5B up to $100B then it is to leverage $100B up to $2 trillion. Makes the economics/returns better too than simply letting it compound up to $100B and losing the leverage.

I get it - wasn't trying to add insight as much as sharing an anecdote on what he/they do with their capital that they cannot put into Medallion.  Also, your example is a bit extreme.  Seems like if they can do those types of returns at $5bn (assumption), how much degredation happens when it's $6bn, or $7bn, or $10bn?  Nobody except people who work there knows why the limit is what it is.

My bad. I guess I misunderstood where you're coming from.

But to your point, assuming that $100B is the limit they can invest effectively, the degradation from $5B to $10B would cut their returns in half due to the increase in equity and reduction in leverage.  Still attractive, but not anywhere near as much so.

Kaegi2011

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But to your point, assuming that $100B is the limit they can invest effectively, the degradation from $5B to $10B would cut their returns in half due to the increase in equity and reduction in leverage.  Still attractive, but not anywhere near as much so.

If you assume returns beyond $100bn to be zero, then the conclusion holds.  I just don't know if it's that clear cut.  To be clear, it's a bunch of top top quants we're talking about, so I don't doubt that the amount they utilize has been optimized to hell.  Having said that, market conditions and their opportunities change, their alternative investment opportunities change, so I do wonder how they decide between putting money into the Medallion fund vs. other markets.  Either way, we're just speculating out here... 

ratiman

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I don't understand the argument that Rentech uses 30x leverage. It's illegal for hedge funds to use more than 6x leverage. The Senate report on Rentech's fraudulent tax avoidance scheme shows that Rentech managed to avoid the leverage limits by pretending that it was really the banks leveraging up, not Rentech. The Senate report shows pretty plainly that Rentech was running an unregulated market making operation. I searched for the Senate report in the online version of the Zuckerman book and saw that he dedicated one paragraph to it, which seems a little strange. No hedge fund manager gets better press than Simons. Imagine if the Senate had issued a report on the fraudulent tax scheme of Einhorn or Kovner.

ratiman

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dwy000

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I don't understand the argument that Rentech uses 30x leverage. It's illegal for hedge funds to use more than 6x leverage. The Senate report on Rentech's fraudulent tax avoidance scheme shows that Rentech managed to avoid the leverage limits by pretending that it was really the banks leveraging up, not Rentech. The Senate report shows pretty plainly that Rentech was running an unregulated market making operation. I searched for the Senate report in the online version of the Zuckerman book and saw that he dedicated one paragraph to it, which seems a little strange. No hedge fund manager gets better press than Simons. Imagine if the Senate had issued a report on the fraudulent tax scheme of Einhorn or Kovner.

Where are you seeing that it's illegal to use more than 6x leverage?  Futures contracts offer more leverage than that for exchange trading and OTC derivative contracts can be way more leveraged.

Mutual funds are limited in their leverage but hedge funds (esp offshore) don't have the same regulations.

Note the book speaks to how they have used swaps and derivatives to lever up (it's the basis for the tax argument as well).