Author Topic: Jim Simons rennaisance technologies - is value învesting not the only way ?  (Read 5035 times)


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Apparently Rentech set up a "joint back office"  with a broker and the leverage limit in that scenario is 7.6:1, which I misremembered as 6:1. But Rentech enjoyed much more leverage than that. From the senate report:

"If RenTec had utilized a normal prime brokerage trading account at Deutsche Bank or Barclays, it would have been subject to the margin limits in Regulation T.  But by using the basket option structure, which RenTec used to trade securities in virtually the same manner as normal prime brokerage trading accounts, the hedge fund claimed it could operate free of the federal margin rules imposing leverage limits.  Because the basket option accounts were opened in the name of the banks and the account assets were also held in the name of the banks, the banks treated funds deposited into those accounts as supplying money to themselves rather than lending money to the hedge funds, which meant the federal leverage limits did not apply.  The banks took the position that they were not lending money to the hedge funds, even though the hedge funds paid financing fees for use of the bank funds; the hedge funds’ premiums provided collateral to secure the financing; and the banks described the options as a way to provide financing to their hedge-fund clients. RenTec used the billions of dollars deposited into its option accounts by the banks to conduct millions of trades per year, and reported to the IRS that Deutsche Bank made “available to Renaissance” leverage as high as 17:1, secured only by the assets purchased with the borrowed money.  At its peak, with bank financing, RenTec’s basket option securities portfolio reached an outstanding notional value of more than $50 billion. The banks and hedge funds claimed the option accounts could operate entirely outside of the federal margin rules, even though those accounts operated in the same way as prime brokerage accounts subject to margin rules.  Circumventing margin rules by relabeling a prime brokerage account as an “option” account is not, however, a legitimate business purpose."