How does it work (or what do the algorithms do) and how is it different from the other funds within the firm?
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https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/073521798X
Thanks
This book says remarkably little about the algos in the fund.
It's mostly a history of how Simmons hired and managed the personalities behind the firm. Interesting read, but not the same.
Agreed, but that is sort of the point none of them were finance backgrounds or anyone who looks at typical fundamentals. If you read the book, chase down all Jim Simons talks over the years his background with first trading gold. You learn quickly they are different breed and truly the math can never get out.
Even the most technical chartist will still read the morning paper these guys do not is perspective he gives so yah asking this on WSO aint gonna go far.
lmao
You say this because no outsiders really know?
Yes
WSO is full of finance majors and Excel monkeys, not math geniuses
No one knows, thats the secret
"What do the algorithms do" -- lol, if you know what Medallion is, then you know they're super secret and nobody who knows their algorithms would answer that question here.
But as for "how is it different from the other funds within the firm" -- sure, that's a reasonable question. Nobody has official answer on Medallion, but it is widely believed to be mostly short term statistical arbitrage with a short holding period. The short term part is crucial, because that's extremely favorable to quant strategies. (Predicting prices over the next minute is far easier than the predicting prices over the next year.) Plus, with short term trades, you can play the "make thousands of bets and you only have to win 51% of them" game, which is much harder with long term strategies. As you surely know, Medallion is closed to outside investors.
Their other funds, like RIEF have specific mandates and less flexibility, but are all longer term (which is not RenTech's strength for reasons described above). All their other funds are very "meh", none of the other funds have any of the magic of Medallion. But most importantly, their other funds are open to outside money, so you could invest them (assuming you were rich enough -- they probably wouldn't bother talking to you unless you're willing to invest like 50 million)
It's not like they (i.e quants at Medallion) have any incentive to share. Pretty much the same at physical shops especially back in the day. On the other hand, government workers on a hot piece of info whether just damning or illegal don't have much incentive to NOT share.
When people say it's short-term holding, is it just rumor being spread, or is there a rough idea of what the holding period is typically (miliseconds to days and weeks)? It's hard to imagine this can be extrapolated from the public data.
You're hitting the nail on the head here - I work in the space and there is no way they are running that big of a vehicle on a minutely signal (like more than an order of magnitude off of what my experience would indicate). What I imagine it is is a combination of alphas at different frequencies. For example, you have a prediction for a 1mo return on a given name, which reflects the position you would like to hold over the next month. However, you also have a signal for the next week, day, hour, minute, second, nanosecond, etc. While you know your end goal is to be in that monthly position, your path to build that is determined by the short term alphas along the way to either a) make some money on the way there b) limit impact / tcosts.
If someone gave me an over / under on their average position age at a week, I'd put good money on the over.
so i know a lot of people in the quant world, and there is a sizeable group of in the know people that think they are insider trading. not saying theres proof, but there's rumors about it.
Doubt it - they have a special exemption from the Labor Department to allow employees to invest in the fund tax-free. Not sure how the government would sign off on that if there was any hint of insider trading going on, but possible.
Nonsense to Medallion insider trading. Just doesn't add up at all. Just ridiculous. Does not fit the facts at all.
1) They are allegedy making 30-100% per year, every year, for the past several decades. Maybe possible they could get a hot insider tip on a stock once in a while; but no way possible that they could be getting that many good tips so consistently for so many years in a row without someone getting caught.
2) Medallian is 5-10 billion dollars, so even if they did get inside tips on stocks, they'd have to get huge massive positions on those stocks, concentrated positions large enough that someone would definitely notice. But this does not happen.
3) Just look at who they're hiring -- math phds with no finance experience and who don't have connections with CEOs. So how would those math phds get inside info? Who would they talk to? If you're looking for inside info, you'd hire connected schmoozers and networkers and industry veterans who play golf with other industry players so they could get info.
4) Based on regulatory filings, everybody on the street seems to agree Medallion is very focused on short-term holdings (which is consistent with statistical arbitrage but very hard to profit from insider trading, unless you're talking about buying stock the day before a merger is announced, but if Medallion was doing that, somebody would have definitely noticed by now).
I was going to type like ten more reasons who it's ridiculous to think Medallion's success can be explained by insider trading; but no, I'm not even going to dignify it with a reply. It's just not happening.
Impressed you wrote 4, seriously insider trading was Galleon Group compare their style to these dudes.
Again these guys do not see companies as names more just patterns on a screen. Beyond ridiculous theory.
Agree. Probably just downright sour grapes envy.
Dudes get caught by SEC making $100k illicit profits insider trading, Medallion has made what, $200bn in profits over the years? And somehow managed not to get caught. Laughable.
this is why I don't bother with those rentech questions....just a total waste of time...
The SEC backtests for insider trading. IE: they look at who had huge suspicious purchases that did will and investigate that further. It's more difficult to avoid than people think.
Literally no one except the people who work there know by design. If we knew, we wouldn't be on this forum we'd be on a yacht somewhere or buying multi-million dollar mansions/art. It is hands down the best-kept secret in terms of fund managers there is, closest runner up being probably the guys at TGS.
I used to work there and am only willing to share this because it's anonymous, but think it's important to our advancement of society to give some insight into what allows them to build such efficient models
High level, and most crucially, it's really important to understand
Um, ok. So you think it's important to give some insight, and you think it's important to understand... what?
Or am I being whooshed here?
Woosh
I doubt they traded one strategy consistently since they began, imagine instead they update constantly. So I guess on a high level you can say that what they “do” is they hire incredibly smart analysts with no pre-conceived notions, they let them loose and hope that these people will be uncorrelated thinkers and look for signals no one else would think of.
It’s a potentially a Ponzi scheme they’re funding from their other funds that are losing money
Nonsense. Medallion was founded somewhere between 1978 and 1988 (there were a few iterations and pivots under different names, so the start date depends on your definition) and was RenTech's only fund until 2005, when it opened RIEF. But during that 1988-2005 period, they still averaged 35% a year after fees. If you think Medallion is stealing money from the other funds, then well, I guess it's conceivable they might be doing that today, but explain how they did that in 1988-2005 when Medallion was the only fund but they still managed to be so wildly profitable?
Ponzi scheme
used to work for one of the rentech ogs at his family office. nothing sus going on there it's just a bunch of very smart people consistently coming up with good ideas.
One of RenTech associates said that they wouldn’t even understand the algorithms themselves sometimes. So yeah, there 0% chance to even get the slightest clue of wtf is going on that office
.
Secret, yes. But what happens when the Medallion people retire, or leave to other firms? I know Jim has an insanely strict NDA that supposedly keeps you within the firm, but what happens when everyone retires? It closes down?
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