This content is from: Portfolio

The Morning Brief: The Secret To Medallion’s Returns? Leverage

So now we know what heavily helped drive the outsized performance of Jim Simons’ Medallion Fund over the years — leverage. Lots of it. Testifying Tuesday at a Senate subcommittee hearing on complex financial structures that helped some hedge funds save billions of dollars in taxes, Peter Brown, co-chief executive of Renaissance Technologies, the firm Simons founded in 1982, stated: “On an unlevered basis, our models produce modest returns with very low volatility.” Rather, Renaissance was able to borrow $17 for every dollar it invested, according to the subcommittee. Wow! According to a 93-page report that found more than one dozen hedge funds using one of these structures, in one year Renaissance executed on average 26 million to 39 million trades. It held many of them for only a few seconds, according to the report, which also said the majority of trading positions were held for less than six months, according to the New York Times.


Private foundations posted gains averaging 15.6 percent in 2013, the second straight year of double-digit returns, according to the 2013 Council on Foundations-Commonfund Study of Investments for Private Foundations. The study of 153 private foundations with $94.1 billion in assets found that alternative strategies posted a 7.3 percent gain, compared with domestic equities, which produced gains of 31.8 percent. Of course, the S&P 500 rose 32 percent last year, including dividends reinvested, suggesting the bulk of the equity money was invested in index funds. In any case, among the various alternative strategies, marketable alternative strategies — which includes hedge funds, absolute return, market neutral, long-short, 130/30, event driven and derivatives — returned 12.6 percent. This compares with distressed debt, up 24.4 percent; venture capital, up 14.2 percent; and private equity — LBOs, mezzanine, M&A funds and international private equity — up 11.4 percent.


BlueMountain Capital Management is suing the government of Puerto Rico over a law enacted on June 28 that permits certain public corporations to avoid paying off their debts. BlueMountain funds hold power revenue bonds in Puerto Rico Electric Power Authority (PREPA), a public company, which the hedge fund firm asserts is “widely considered the most likely public corporation to seek to avoid its debts under the Puerto Rico Public Corporation Debt Enforcement and Recovery Act,” according to a press release. BlueMountain manages more than $20 billion, including hedge funds.


Tiger Global Management’s private equity arm has made another investment. The New York–based firm has led a $75 million Series C funding for AvantCredit, a Chicago-based online lending company. AvantCredit says in a press release it has now raised more than $300 million in equity and debt.


Jeffrey Ubben’s ValueAct Capital Partners cut its stake in Dresser-Rand Group by 60 percent, to 2 million shares. As a result, the San Francisco–based activist hedge fund firm now only owns 2.6 percent of the supplier of equipment to the energy and power industries.


UBS raised its price target on Microsoft — a major ValueAct activist target — to $50 from $46, citing persistent innovation and stiffer cost controls.

Related Content