By any measure, Renaissance Technologies’ $7 billion settlement with the Internal Revenue Service is stunning and historical.
But there’s no need to pass the hat for Jim Simons, the founder of the quantitative hedge fund giant.
The math whiz and one-time code breaker for the U.S. Defense Department is the only hedge fund manager to qualify for Institutional Investor’s annual Rich List of the highest-earning hedge fund managers for all 20 years of the ranking’s existence.
During this period, Simons has earned a total of more than $32 billion.
In fact, during the disputed tax period of 2005 through 2015, Simons earned nearly $22 billion, or more than triple the settlement amount, which will be divided among Simons and several others.
According to the Wall Street Journal, current and former executives of the quantitative-driven hedge fund firm will personally shell out as much as $7 billion to pay back taxes, interest, and penalties to settle a “long-running dispute with the Internal Revenue Service,” according to the report.
Simons will make an additional “settlement payment” of $670 million as well as back taxes related to his gains, according to a letter sent from the firm to current and former investors, which was published in the WSJ report.
“The interests of our investors from the relevant period would be best served by agreeing to this resolution with the IRS, rather than risking a worse outcome, including harsher terms and penalties, that could result from litigation,” Renaissance stated in the letter.
The dispute stems from the tax treatment of certain options transactions undertaken by Renaissance’s legendary Medallion fund from 2005 to 2015, according to the letter.
No other Renaissance fund engaged in this practice.
“The dispute turned on whether the options should be respected as separate instruments for tax purposes or, as the IRS contended, disregarded so as to treat the Medallion entities that held the options as if they actually held the individual securities positions in the option portfolios,” Renaissance explained in the letter.
Simons founded the wildly successful East Setauket, New York-based quantitative hedge fund firm in 1982.
The Medallion fund, which closed to outside investors more than a decade ago, is considered the most successful hedge fund of all time.
Institutional Investor previously reported that in 2020, Medallion enjoyed one of its best years ever, surging 76 percent, according to one of its investors.
The Wall Street Journal had earlier reported that Medallion generated an annualized net return of 39 percent through 2019.