Renaissance Technologies’ famed Medallion fund, available only to current and former partners, had one of its best years ever, surging 76 percent, according to one of its investors. But it was a different story for outsiders who are only able to invest in other RenTec funds — two of which had their worst years ever.
The Renaissance Institutional Equities Fund, which launched in July of 2005, lost 22.62 percent through December 25, according to HSBC’s weekly scoreboard of hedge fund performance. A newer fund, Renaissance Institutional Diversified Alpha, fell even more: It fell 33.58 percent through the same time period, HSBC reported. Those two funds’ performance was so poor that they made HSBC’s top 20 losers list for 2020.
Renaissance launched RIDA in February of 2012, and 2020 was its worst year since then, the report said.
Renaissance declined to comment.
Last year wasn’t RIEF’s first bout with turbulence. The fund was launched as a way for outsiders to partake of RenTec’s special sauce, as Medallion had only been available to insiders for several years by then. But RIEF fared poorly during the financial crisis: The fund fell 16 percent in 2008 and 6.17 percent in 2009. Its longest drawdown was between May of 2007 and April of 2009, a period when it fell 35.73 percent, according to HSBC.
But until last year RIEF had produced double-digit returns for most of the past decade. Still, the earlier losses dragged down its annualized return, which is now only 8.05 percent. That’s below the Standard & Poor’s 500 stock index’s annualized return of 9.6 percent during the same time period.
Contrast that with Medallion. At the end of 2019, the Wall Street Journal reported that the flagship fund had annualized at 39 percent. Only two years appear to have been better than 2020, as the Journal reported Medallion had gained 98.5 percent in 2000 and 82.4 percent in 2008.
The Medallion investor told Institutional Investor that RIEF’s subpar performance last year shouldn’t come as a surprise. “It has a 6-month to one-year holding time and it uses factor-based risk models to hedge risk,” he said. “There is nothing wrong with the models. it’s just the world is wrong.”
[II Deep Dive: The Medallion Fund, Skepticism, and a Failure to Comprehend]
“The unpredictable patterns of risk behavior created by the disruption of Covid and the idiosyncratic distribution of stimulus money created an unprecedented pattern of stock price movements that couldn't possibly be adapted to by quantitative strategies,” he added.
Put another way, quant models are built on historical patterns, and there had not been a pandemic in more than 100 years, rendering those patterns useless, explained a quant executive.
Medallion, on the other hand, has a much shorter holding time and adapts more quickly to market changes as a result. Although the fund had “huge” swings in its profit and loss in March, according to the investor who spoke to II, it was able to adapt to the market’s comeback. It also uses more leverage than RIEF, which boosted returns as markets bounced back.
“There is just no reason for Medallion and RIEF to be in any way correlated,” he said. “The only thing they have in common is that they are operated using the same software and have the same senior management team. Everything else about them is uncorrelated.”
Over the years, Medallion’s spectacular returns have made the now-retired Simons a multi-billionaire and a perennial member of II’s Rich List. Forbes estimates the net worth of 83-year-old hedge fund legend at $23.5 billion, making him the 24th-richest person in the United States.
