Jim Simons Medallion Fund is poised to post one of its worst years in its 23-year history. However, this just underscores how astoundingly the fund has performed over the years.
Through November, Medallion, which for years has only been open to partners, employees and friends, is said to be up around 25 percent or so, net of its 5 percent management fee and 44 percent performance fee, according to knowledgeable sources. However, it could actually be a little higher than this. At the very least, this works out to around 50 percent gross, which would still make it one of the years best performing hedge funds again.
However, Medallion's net return has ranged between 40.5 percent and 84.1 percent in each of the past four years. Incredible. If it finishes up less than 29.50 percent this year, it would be the hedge fund's worst year since 2005.
If it finishes the year up less than 21 percent, it would suffer its worst year since 1989 its second year of existence when it lost more than 4 percent, its only losing year. But, this would mean the quantitative fund would have experienced a big loss in one month.
Of course, virtually every investor and most hedge fund managers would sign a long-term contract for suffering a 21 percent annual return. So, lets keep this in context.
Also, remember that although Simons has charged a 5 percent management fee for years, the performance fee for Medallion easily the greatest hedge fund of all time was only 20 percent through the end of 2001 and 36 percent in 2002. So, his gross return these days is much higher than it was before 2002 on the same net return.
Still, Medallion is only up slightly since the beginning of September, when the fund had risen by 22 percent for the year. In the first half of the year, Medallion had climbed 17 percent or so.
On the other hand, Simons two newer funds could generate their best historic returns this year. Renaissance Institutional Futures fund (RIFF) introduced in October 2007 is up 20 percent through November, by far its best full year performance. It was up just 3.8 percent last year after losing 12 percent in 2008, but just about one-third the loss of the S&P 500 that year.
The Renaissance Institutional Equities fund, also known as RIEF, is up 17.8 percent through November. This is its best year since 2006, when the fund returned nearly 21 percent. However, it has lost money the past three years.
Now, keep in mind that this fund was created to generate gross annual returns of 400 to 600 basis points above the S&P 500 over rolling 3- to 5-year periods. It has easily achieved this goal this year alone, as the S&P 500 was up a little less than 6 percent through November.
However, in the six years of its existence, RIEF has only beaten the benchmark by its hoped-for margin in three of them, including this year. But, it has met its goal over the most recent three-year and five-year periods.
And, although Renaissance was considering closing down RIEF and RIFF a year or so ago, the firm squelched those reports back in September when it announced it would keep them open after an extensive review.
Our confidence in these quantitatively-managed, long investment horizon products has been bolstered both by an intensive reexamination of their underlying technology and by their performance during the recent tumultuous economic period, said co-CEOs Peter Brown and Robert Mercer in a letter to investors at the time.
They noted that since its inception RIEF has returned a total of 4.55 percent while experiencing only 60 percent of the volatility of the S&P 500. During that same period the index declined 5.34 percent.
The firm also noted that Renaissance staff added substantial capital to these funds.