For years, Renaissance Technologies was one of the loftiest names in the high finance world, just as surely as Wall Street had. But recent months have tarnished its reputation and investors are now flocking to the exits.
Renaissance has seen at least $ 5 billion in redemptions since December 1 – a once unthinkable rebuke from customers after unprecedented losses from the East Setauket, New York-based company.
The strike comes after three funds open to the public fell by double digits last year, their computer models confused by the rapid stock market crash and an even faster recovery.
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Renaissance is now in a position unlike any other in its nearly 40-year history: He’s trying to convince investors who once cried out to get into his funds that it’s still worth their money, and that it’s on it can trust that it will yield a market-based return.
Renaissance’s awful 2020
Last year was the worst year on record for its largest fund, RIEF
Source: Investor Documents
A company spokesman declined to comment.
Money maker
Founded in 1982 by Jim Simons, a former code breaker for the National Security Agency, Renaissance is the world’s largest quantitative hedge fund firm. Its reputation was largely based on the success of its Medallion fund, which has averaged about 40% annual returns since its inception in 1988.
Initially launched as a systematic, trend-following fund trading in commodities markets, Medallion lost money after the first six months and underwent a facelift that led to its stunning performance.
The company realized after about 15 years that there were limits to the amount the fund could manage without pushing the markets too much, Simons said in a statement. interview in early 2019. So Renaissance removed remaining outside investors in 2005 and has since tried to limit the size of Medallion, which Bloomberg previously estimated at about $ 10 billion.
The success of the Renaissance has made Simons one of the world’s richest people, with a fortune of about $ 23 billion, according to the Bloomberg Billionaires Index. Last month, he announced that he was stepping down as chairman of the company, which at the time managed approximately $ 60 billion. He remains a board member.
With Medallion closed, Renaissance has three funds for outsiders. The largest, Renaissance’s Institutional Equities fund, had more than $ 30 billion in assets last year.
Clients raised $ 1.85 billion net from the three public funds in December and demanded $ 1.9 billion net in January, according to investor letters seen by Bloomberg. Investors are poised to snatch another $ 1.65 billion this month, the letters show.
Those numbers can be offset if there is an inflow in February or if investors decide to reverse one of their buyback requests.
Underperformance
RIEF lost 19% in 2020, the letters show. That fund received most of the repayments. The Institutional Diversified Alpha Fund fell 32% and the Institutional Diversified Global Equities Fund fell 31%. Medallion won 76%, according to Institutional Investor.
The public funds troubles started early last year when the Covid-19 pandemic upset US stocks. Renaissance told investors in an April letter that its trading systems added market exposure in early January and changed course later in the first quarter based on the beta model’s estimates. RIEF closed the three-month period at 14%, compared to a loss of nearly 20% for the S&P 500, including dividends.
The firm said in its April letter that it was “vigorously exploring a number of ideas to improve both the beta models and the control systems that use these models.”
Stocks rebounded after the first quarter plunge, with the S&P gaining 47% from April through December, including dividends. Renaissance told clients in a September letter that the losses up to that point were due to undercoverage during the March collapse and then undercoverage amid April through June gains. That happened because his trading models “overcompensated” the original problems.
Renaissance spoke again of his bleak numbers in a December letter.
“While the recent performance was terrible and would have suggested worse than previous performance, it was likely for 2020,” the company said, expecting the model “that in track records as long as ours, some risk-return ratios are as bad as those. we see now are not shocking. “
The broader lesson is that “even good investments can be expected to perform terribly from time to time,” he said.
CALL fell by a further 9.5% in January.