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Renaissance hedge fund: Only scientists need apply
By Dane Hamilton
NEW YORK (Reuters) - Wall Street traders and analysts take note: don't bother applying to work at Renaissance Technologies, the $30 billion (15 billion pound) hedge fund manager whose assets could reach $100 billion in coming years.
The top-performing firm only hires scientists to develop its trading strategies, all of which are executed entirely by computers, its founder and president Jim Simons told an industry audience in New York this week.
"We hire physicists, mathematicians, astronomers and computer scientists and they typically know nothing about finance," Simons said in a keynote address at the International Association of Financial Engineers annual conference. "We haven't hired out of Wall Street at all."
Simons' talk before an audience of mostly quantitative traders, analysts and others shed a little light on the secretive world of Renaissance, whose returns are renown on Wall Street but whose trading strategies are often described as "black box."
Renaissance is far from typical in the fast-growing, $1.5 trillion hedge fund industry, which is largely populated by finance pros with a Wall Street or City of London pedigree. The firm operates from a 50-acre campus near Stony Brook University in Long Island, New York, where the 69-year-old Simons chaired the math department prior to founding Renaissance in 1989.
And Simons, who previously taught math at Massachusetts Institute of Technology and Harvard, sticks closely to his academic and scientific roots, having imprinted a strict academic rigor at the firm, where some 270 are employed.
The firm's scientists tap decades of diverse data in Renaissance's vast computer banks to assess statistical probabilities for the direction of securities prices in any given market. Experts attribute a breadth of data and the firm's ability to manipulate it for its consistent success in beating the markets.
Simons' first hedge fund open to outside investors, the now-$6 billion Medallion Fund, for instance, generated annualized returns of over 33 percent over 15 years to 2004, according to marketing materials obtained by Reuters.
Since 2005, the firm has been raising its Renaissance Institutional Equities Fund (RIEF), now about $24 billion, which beat the Standard & Poor's 500 index by about 6 percent last year for a return of about 21 percent, according to one investor in the fund who declined to be identified. The fund has between 3,000 to 4,000 positions in its portfolio on any given day, mostly long but some short, said Simons.
"We have a heck of a big proprietary library, so to speak," the bearded, casually dressed Simons said at the IAFE meeting. "We do a lot of experiments. Some succeed, some fail."
Simons said this constant pursuit of new strategies is essential for its success. He declined to discuss any particular Renaissance strategy, except to say that "trend following," a strategy that identifies trends in any particular market, has "lost its zip" in recent years due to intense investor speculation, a factor which accelerates trends.
"Almost any good viable predictive signal will almost certainly erode over five years," he said. "You have to keep coming up with new things. The market is working against you."
Simons made a splash in 2005 when he opened RIEF by saying the fund was designed to handle $100 billion, which would be by far the largest single hedge fund. It has since said that the amount of money raised will be contingent on trading success.
But Simons made it clear that he expects continued success at Renaissance, despite the requisite "safe harbor" legal statements in its marketing materials that "past performance is not indicative of future results."
The widely used statement contrasts with what Simons -- and most Wall Street investors -- believe, which is that consistent past success, be it for companies, funds or others, does indicate future performance.
"Past performance of a hedge fund is to some extent how well it's going to do in the future," said Simons, whose firm runs an internal hedge "fund of funds" that invests in other hedge funds, giving it direct knowledge of such things.
As one who continually calculates statistical probabilities, Simons said his wording would likely be that past performance "is somewhat likely correlated with future performance." But he said regulators would probably object to such a statement in a Renaissance prospectus.
By Dane Hamilton
NEW YORK (Reuters) - Wall Street traders and analysts take note: don't bother applying to work at Renaissance Technologies, the $30 billion (15 billion pound) hedge fund manager whose assets could reach $100 billion in coming years.
The top-performing firm only hires scientists to develop its trading strategies, all of which are executed entirely by computers, its founder and president Jim Simons told an industry audience in New York this week.
"We hire physicists, mathematicians, astronomers and computer scientists and they typically know nothing about finance," Simons said in a keynote address at the International Association of Financial Engineers annual conference. "We haven't hired out of Wall Street at all."
Simons' talk before an audience of mostly quantitative traders, analysts and others shed a little light on the secretive world of Renaissance, whose returns are renown on Wall Street but whose trading strategies are often described as "black box."
Renaissance is far from typical in the fast-growing, $1.5 trillion hedge fund industry, which is largely populated by finance pros with a Wall Street or City of London pedigree. The firm operates from a 50-acre campus near Stony Brook University in Long Island, New York, where the 69-year-old Simons chaired the math department prior to founding Renaissance in 1989.
And Simons, who previously taught math at Massachusetts Institute of Technology and Harvard, sticks closely to his academic and scientific roots, having imprinted a strict academic rigor at the firm, where some 270 are employed.
The firm's scientists tap decades of diverse data in Renaissance's vast computer banks to assess statistical probabilities for the direction of securities prices in any given market. Experts attribute a breadth of data and the firm's ability to manipulate it for its consistent success in beating the markets.
Simons' first hedge fund open to outside investors, the now-$6 billion Medallion Fund, for instance, generated annualized returns of over 33 percent over 15 years to 2004, according to marketing materials obtained by Reuters.
Since 2005, the firm has been raising its Renaissance Institutional Equities Fund (RIEF), now about $24 billion, which beat the Standard & Poor's 500 index by about 6 percent last year for a return of about 21 percent, according to one investor in the fund who declined to be identified. The fund has between 3,000 to 4,000 positions in its portfolio on any given day, mostly long but some short, said Simons.
"We have a heck of a big proprietary library, so to speak," the bearded, casually dressed Simons said at the IAFE meeting. "We do a lot of experiments. Some succeed, some fail."
Simons said this constant pursuit of new strategies is essential for its success. He declined to discuss any particular Renaissance strategy, except to say that "trend following," a strategy that identifies trends in any particular market, has "lost its zip" in recent years due to intense investor speculation, a factor which accelerates trends.
"Almost any good viable predictive signal will almost certainly erode over five years," he said. "You have to keep coming up with new things. The market is working against you."
Simons made a splash in 2005 when he opened RIEF by saying the fund was designed to handle $100 billion, which would be by far the largest single hedge fund. It has since said that the amount of money raised will be contingent on trading success.
But Simons made it clear that he expects continued success at Renaissance, despite the requisite "safe harbor" legal statements in its marketing materials that "past performance is not indicative of future results."
The widely used statement contrasts with what Simons -- and most Wall Street investors -- believe, which is that consistent past success, be it for companies, funds or others, does indicate future performance.
"Past performance of a hedge fund is to some extent how well it's going to do in the future," said Simons, whose firm runs an internal hedge "fund of funds" that invests in other hedge funds, giving it direct knowledge of such things.
As one who continually calculates statistical probabilities, Simons said his wording would likely be that past performance "is somewhat likely correlated with future performance." But he said regulators would probably object to such a statement in a Renaissance prospectus.
