Not even a crisis can bring down Renaissance Technologies’ market-leading Medallion fund. However, the same cannot be said for the quantitative firm’s other hedge funds — the ones meant largely for outside investors.
According to the Wall Street Journal, the famous — and famously secretive — Medallion fund was up a stunning 24 percent year-to-date through April 14. This included a 9.9 percent gain in the month of March, when stock prices plunged.
Yet Renaissance Technologies’ other funds have not fared so well in 2020. Even after bouncing back in the first half of April, the three funds — Renaissance Institutional Equities Fund, Renaissance Institutional Diversified Alpha, and Renaissance Institutional Diversified Global Equities Funds — were each down between 7 and 9 percent for the year through April 17.
The disparity — a performance difference of some 17 to 19 percentage points — is “really surprising,” according to Bradford Cornell, a professor emeritus at the University of California Los Angeles.
The professor’s surprise is, perhaps, not surprising at all.
Cornell previously analyzed the performance of the Renaissance Technologies funds in a brief paper entitled “Medallion Fund: The Ultimate Counterexample?” In the paper, he wrote that the performance of the Medallion fund — which between 1988 and 2018 delivered a gross annualized return of 66 percent — was “extraordinary.”
Turning to the returns of the REIF and RIDA funds, however, Cornell found that they were “relatively mundane and in no way comparable to Medallion.”
Wall Street Journal reporter Gregory Zuckerman, the author of The Man Who Solved the Market, says the large gap in returns can be explained by the differences in strategies among the four funds.
“Discrepancies between Medallion's returns and those of other Renaissance funds catch the eye, but I've never seen evidence something nefarious is going on — neither has the SEC, which spent two years in their offices after the Madoff scandal,” he said in an emailed statement. “Medallion has short-term holding periods, RIEF and the other funds search for longer-term aberrations and own smaller stocks and other investments — things Medallion shies away from.”
According to fund documents, the Medallion fund employs a short-term, quantitative trading strategy across multiple asset classes. These include global equities, futures, commodities, and currencies, according to a person familiar with the fund. It also tends to have high turnover and significant leverage.
The Renaissance Institutional Equities Fund, by comparison, only trades in equities, and holds stocks for long periods of time, according to fund’s registration document.
As Institutional Investor previously reported, the REIF fund was created to generate gross annual returns of 400 to 600 basis points — or 4 to 6 percentage points — above the S&P 500 over rolling three- to five-year periods.
The fund was up 8 percent for the month as of April 17. Year-to-date, it was down 7 percent — roughly 400 basis points better than the S&P 500, which was down by over 11 percent for the year through April 17.
The Renaissance Institutional Diversified Alpha fund, meanwhile, trades equities, derivatives, and various instruments in the global futures and forwards markets, according to fund documents. Like REIF, the RIDA fund holds significant individual positions, usually for long periods of time.
It was up 1.55 percent for the month through April 17, for a year-to-date loss of 9 percent.
The Renaissance Institutional Diversified Global Equities Funds, which trades equities and derivatives, was also in the red as of April 17, despite a 3 percent gain for the month thus far. According to fund documents, the RIDGE fund seeks to be market neutral by maintaining low levels of beta, or exposure to the broader market.
But as the firm admitted in the fund registration document, “the beta models in recent volatile markets have not performed as expected.”
Overall, the returns are in stark contrast to that of the Medallion fund — a fund that has been closed to external capital since 1993.
“If they have such secret sauce, how could the public funds be down so much?” Professor Cornell said in an email. “I wish I had an answer.”
—II’s Stephen Taub contributed to this reporting.