Was Renaissance’s Success Luck or Skill – And Was It Behind Trump’s Victory?
The hedge fund firm Renaissance Technologies, founded by the distinguished mathematician James Simons, has been an object of amazement, admiration, and envy for years, because of the incredibly high investment returns of its flagship Medallion fund. In a new book, The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution, author Gregory Zuckerman comes as close as anyone outside Renaissance ever has to explaining how Renaissance did it. In passing, he also sheds light on the Renaissance co-CEO who, as much as any other single private person, was responsible for the earth-shaking political events that occurred recently in the Western English-speaking world.
Renaissance’s spectacular investment performance
Kurt Vonnegut’s 1965 novel, God Bless You, Mr. Rosewater, begins “A sum of money is a leading character in this tale … The sum was $87,472,033.61 on June 1, 1964, to pick a day.”
This seems a little quaint in the present time, when almost every prominent capitalist or celebrity, and her brother, can be assumed to be a billionaire or at least a multiple-hundreds millionaire. But in God Bless You, Mr. Rosewater it was meant to represent an incalculable and inexhaustible sum of money – enough to be a force of nature in itself, and the lead character in a novel.
A novel – or a non-fiction book – about Jim Simons and Renaissance Technologies could similarly begin by naming the leading character, in this case not a dollar figure but a percent, namely 63.3%, or 37.7% after fees.
That is the average annual percent by which the Medallion fund increased from 1988 through 2018. To put it another way, the fund’s first dollars grew over the 31 years by 400 million percent before fees, and by two million percent after fees. An investor who had invested $1,000 at the beginning of 1988 would have accumulated more than 20 million dollars at the end of last year; if it were to continue another 30 years that $1,000 would become $412 billion. Those figures also tell you how much the fund’s managers must have made; it would put Midas to shame.
I had an extended coffee with a friend recently and mentioned this book and the Medallion results. It turned out, surprisingly, that he wasn’t especially aware of Renaissance, Medallion, or Jim Simons. When I told him about Medallion’s investment results he didn’t believe them.
I wouldn’t have believed them either if I hadn’t been hearing about this for a long time. But rumors had spread about Madoff’s very good but much less spectacular results for a long time too. In Zuckerman’s Appendix, where he lists Medallion’s annual returns, he cites the source as “Medallion annual reports; investors” – not exactly 100 percent conclusive evidence that they are accurate. Nevertheless, I believe them. And yet, I consider it possible that I’ll discover at some time in the future that I was wrong to believe them. But henceforth, I will take them as a given.