For years, Renaissance Technologies was among the most exalted names in high finance, as close to certainty as Wall Street was. But the past few months have shaken its reputation, and investors are now rushing for exits.
Renaissance has seen at least $ 5 billion in redemptions since Dec. 1 – a previously unthinkable reprimand from customers after unprecedented losses from New York-based East Setauket.
The shutdown comes after three publicly traded funds fell by double digits last year, with their computer models confused by the rapid stock market crash and an even faster recovery.
Read more: Human-managed hedge funds exceed quants in the year governed by the pandemic
Renaissance now finds itself in a position unlike any other in its nearly 40-year history: trying to convince investors who previously clamored to enter their funds that it is still worth their money and can be trusted to deliver superior returns to the market .
Terrible Renaissance in 2020
Last year was the worst on record for its largest fund, the RIEF
Source: Investor documents
A company spokesman declined to comment.
Money maker
Founded in 1982 by Jim Simons, a former National Security Agency code cracker, Renaissance is the largest quantitative hedge fund company in the world. Its reputation was built in large part on the success of its Medallion fund, which has average returns of around 40% per year since its inception in 1988.
Initially launched as a systematic fund that followed the trends it traded in commodity markets, Medallion was losing money after its first six months and underwent a makeover that led to its impressive performance.
The company realized after about 15 years that there were limits to the amount the fund could manage without putting too much pressure on the markets, Simons said in a statement. interview in early 2019. Therefore, Renaissance removed the remaining foreign investors in 2005 and has since sought to limit the size of the Medallion, which Bloomberg had previously estimated at around $ 10 billion.
The success of the Renaissance made Simons one of the richest people in the world, with a fortune of about $ 23 billion, according to the Bloomberg Billionaires Index. Last month, he announced that he was stepping down as president of the company, which was managing about $ 60 billion at the time. He will remain a board member.
With Medallion closed, Renaissance has three funds for outsiders. The largest, Renaissance’s institutional stock fund, last year had more than $ 30 billion in assets.
Customers withdrew $ 1.85 billion net from the three public funds in December and requested $ 1.9 billion net in January, according to letters from investors seen by Bloomberg. Investors are expected to raise another $ 1.65 billion this month, the letters show.
These numbers can be offset if there are inflows in February or if investors decide to back down on their redemption requests.
Low performance
The RIEF lost 19% in 2020, the letters show. This fund obtained most of the redemptions. Institutional Diversified Alpha fell 32% and Institutional Diversified Global Equities fell 31%. The medallion won 76%, according to the Institutional Investor.
The problems for public funds began early last year, when the Covid-19 pandemic shook US stocks. Renaissance told investors in an April letter that its trading systems increased exposure to the market in early January and then reversed the course at the end of the first quarter based on the beta model’s estimates. The RIEF ended the three-month period with a 14% drop, compared to a loss of almost 20% for the S&P 500, including dividends.
The firm said in the April letter that he was “vigorously exploring a number of ideas on how to improve the beta models and the control systems that make use of these models”.
The stock rebounded after falling in the first quarter, with S&P gaining 47%, including dividends, from April to December. Renaissance told customers in a letter in September that their losses up to that point were due to under-hedged during the March collapse and then over-hedged amid gains from April to June. This was because their business models “overcompensated” for the original problem.
Renaissance again addressed its dismal numbers in a December letter.
“Although recent performance has been terrible and worse than previous performance, it would have suggested that it is likely for 2020,” said the company, its model “predicts that in histories as long as ours, some risk-return rates as bad as those that we are seeing now are not shocking. “
The broader lesson is that “even good investments should be expected to perform poorly from time to time,” he said.
RIEF fell another 9.5% in January.