Is Renaissance Tech. a Ponzi scheme?

anonmises's picture
Rank: Orangutan | 356

Before I start, I want to clarify something: I am not accusing RT of being involved in a Ponzi scheme nor did I come up with this conspiracy.

With that said, I did stumble across this theory recently when Gregory Zuckerman published this article on Jim Simons titled, "The Making of the World's Greatest Investor". After finishing his article (would highly recommend reading it), I continued on further into the comment section and that's where I found numerous people literally accusing him of running a Ponzi scheme bigger than Madoff's. Here's the actual comment, "It's the consistency and size of the returns that I just can't wrap my head around. If the returns were real, why don't more smart, PhD mathematicians copy his approach? This quote in the article really set me off too: 'Next year we should get it up to 80%,' Mr. Simons said one day in 1990 about Medallion, which managed about $40 million at the time.' It just sounds way too much like someone deciding what kind of returns they want to show to investors, and then making it all up to get to a desired result." Now as crazy as he may sound, he does make valid points. No other investor comes even close to matching these returns over the past 20+ years. For example, in 07' and 08' his fund returned 137% and 152%, respectively. The quote he chooses from the article is also interesting, I mean how many investors just set a goal of 80% for the upcoming year and ACTUALLY meet it.

I'm sure these theories are rooted in deep jealously and envy. However, I figured WSO would be a good place to offload this. What are your thoughts?

Comments (22)

Most Helpful
Nov 5, 2019

The Medallion fund is only running the founders and employees own money. So if it's a scam then they're only scamming themselves, which doesn't make any sense. Being a closed fund the claimed returns are not verifiable though, other than Jim Simons being a very wealthy man.

    • 12
Nov 6, 2019

Lol I didn't even know this. Brings up a good point about having evidence before making an accusation.

Even though returns can't be verified it's not like RT is promoting their numbers to attract investors. So, it wouldn't do him or the fund any good to lie about returns.

Funniest
Nov 6, 2019

I can ensure you it's not a Ponzi.

    • 29
    • 1
Nov 6, 2019

LMAO

    • 1
Nov 6, 2019

LMFAO ROFL HAHAHAHAHAHA LOLOLOL

    • 5
Nov 10, 2019

*assure.

    • 2
  • Quant in HF - Other
Nov 6, 2019

I don't work for them obviously but I know a few people connected to the firm in different ways. It's really just a combination of being at the forefront of development of cutting edge quant techniques (as in decades early), staying very stringent about capacity over its history and of course a high level of secrecy. There's no illuminati conspiracy or ponzi nonsense, they're just very good at what they do and established themselves early on as pioneers in the quant space.

If you think about all the big name quant funds nowadays running billions in a strategy while competing with numerous other equally large funds all exploiting the same alpha sources, this is a really different landscape to how it was in the 80s/90s running a small fund with fewer rivals - although that's not to take anything away from how smart these guys are or how impressive the results are.

    • 4
Dec 2, 2019
Quant in HF - Other:

I don't work for them obviously but I know a few people connected to the firm in different ways. It's really just a combination of being at the forefront of development of cutting edge quant techniques (as in decades early), staying very stringent about capacity over its history and of course a high level of secrecy. There's no illuminati conspiracy or ponzi nonsense, they're just very good at what they do and established themselves early on as pioneers in the quant space.

If you think about all the big name quant funds nowadays running billions in a strategy while competing with numerous other equally large funds all exploiting the same alpha sources, this is a really different landscape to how it was in the 80s/90s running a small fund with fewer rivals - although that's not to take anything away from how smart these guys are or how impressive the results are.

Do you use punctuation?

    • 1
    • 4
  • Quant in HF - Other
Dec 2, 2019

Where would you like me to add further punctuation? As far as I can see it's all syntactically correct and fairly easy to parse. I would imagine you're referring to the first fragment of the second paragraph, but the marginal increase in practicality from just adding a comma after 'in a strategy' isn't really enough to single that comment out as lacking in punctuation in my opinion.

    • 1
Dec 2, 2019
Quant in HF - Other:

If you think about all the big name quant funds nowadays running billions in a strategy while competing with numerous other equally large funds all exploiting the same alpha sources, this is a really different landscape to how it was in the 80s/90s running a small fund with fewer rivals - although that's not to take anything away from how smart these guys are or how impressive the results are.

This is the definition of a run on sentence.

Aside from that, I do agree with the content of what you're saying. They essentially invented quant trading. That there are conspiracy theories, par for the course.

    • 1
Nov 6, 2019

Medallion is definitely legit and is like an HFT fund, but maybe the only one that has scaled to a large size. One of their interviews said that their strategies have small but very consistent returns, which are run on high leverage. There are a lot of small HFT shops out there that get similar returns on much smaller capital bases. As the previous poster said, they were doing things like alt-data and machine learning long before it became a trend, and hired many experts in the field in the 1990s. They are also well run as an organization, with very low turnover and people incentivized to work together instead of competing. I interviewed there once a long time ago and they seem to mostly hire mid-career scientists and researchers who have a track record in their fields.

    • 1
Nov 6, 2019

on behalf of clients, I am an investor in Renaissance. they are not a ponzi scheme as far as I can tell. ponzi schemes unravel during volatility and have weird liquidity lockups. renaissance has neither of those characteristics and is as transparent as other hedge funds we use. also, the returns they claim are not too good to be true. if they were, I'd be concerned, but they're just superior risk adjusted returns to other hedged strategies

    • 2
Nov 6, 2019

I think the biggest reason is that they understand strategies shit out at certain sizes unlike VCs that think they can profitably deploy $748 billion dollars in 174 days.

Nov 7, 2019

Not sure why this got MS, this is literally one of the most crucial reasons.

    • 2
  • Associate 2 in CorpDev
Dec 2, 2019

VCs can deploy said amount in said time frame, they just need to throw money at the abundant pile of shitty businesses out there - which coincidentally is what most of them do anyway...

    • 1
Nov 7, 2019

I'm reading the book you pulled the 80% quote from and he / they had a remarkable long run of lack of success (multiple years). Also Simmons appears (not personally familiar, purely based on book) to pickup really quick: between math, his stint as a code breaker for the US govt at age 30 where he quickly got promoted, then being tasked to run a math department (and successfully recruited other apparently prominent geometry professionals). There's an anecdote in the book he taught a course at the grad level on something he thought would be important and because no one knew it, he would learn it a week ahead of the class then teach it. He had his secretary go and write down daily interest rates. Seems fairly innovative for the late 70s to early 80s, and just imagine all the time they had to get better.

Not sure that disproves your hypothesis, but theres some balancing factors here.

    • 3
Nov 8, 2019

i recently read the book on him

a few thoughts

1) if ponzi scheme then how are Simons and key employees so wealthy in pure cash? they bought their stuff with real cash (note madoff didn't let his investors redeem)
2) it's not true the returns were this remarkably consistent. initially, he failed quite a bit if you read the biography / book on SImons just released.
3) if it's a ponzi scheme, the only possible way is to use non-Medallions fund to feed the returns of medallion and have medallion trade against the part of the fund open to outside investors. OR to exaggerate medallion's returns to raise outside capital. these are totally possible and frankly believable. that said, even this isn't technically a ponzi scheme.

    • 2
Nov 10, 2019

Definitely not a Ponzi.

His returns are inline with other firms that run similar capital with trading strategies from high frequency into months. It's the turnover that really boosts returns. How often do you see an individual stock pop 3-4% in a day. Happens all the time.

Returns would be inline with shops like Jane St, DRW, Jump, etc. Some of the larger quant shops might be able to hit rentech numbers I'd they didn't search for more assets.

Returns are only about double what a Tudor or Soros could put up back in the day.

Array
Nov 11, 2019

If you read the book, you'll also see that the RenTech team is one of the hardest working in the industry. Peter Brown, the CEO, has essentially lived out of the office for the past 2-3 decades at least half of the week, essentially equivalent to pulling all-nighters every few days. Employees adhere to similarly insane working hours to perfect every aspect of their trading and predictive modeling. Combine the intense work ethic with the brilliance/pedigree of hire, and the huge technological lead that they invested in the 1990s, their trading performance becomes much more believable. The incredible thing is that it seems like Simons didn't contribution much at all to the actual modeling and development of their trading platform--he just created the environment for success. The principal agents that drove the creation and enhancement of the platform are largely still involved and engaged as always, a rare thing for most firms as the CEOs/CIOs tend to lose engagement over time.

Nov 11, 2019

Their returns are impressive for a public fund. Like others have stated in this thread, most do not understand that strategies can only scale so much. Many of the large HFT/Prop shops have these kinds of returns (I can vouch for this, I work for one). Everyone who has these types of returns do not share them with the public, i.e. offer a fund to the public. Why do that when you can become incredibly rich doing it for yourself?

This may rub some the wrong way, but quant HFs are just sell outs who couldn't make a decent enough return so they ask for fees. Obviously this does not apply to all, but you get what I mean. RenTech apparently found a good middle ground.

Nov 12, 2019
Comment
    • 1
Dec 11, 2019
Comment
Array