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Renaissance Technologies’ Medallion fund, which since 2005 has been closed to external investors, remains the stuff of legend. But the hedge funds it offers to outsiders have collapsed in size.
FT Alphaville understands that the Renaissance Institutional Equities Fund (RIEF) currently manages about $19.6bn, down from about $35.8bn at the start of 2020.
Even this pales next to the collapse of the Renaissance Institutional Diversified Alpha Fund (RIDA) and Renaissance Institutional Diversified Global Equities (RIDGE), which have shrunk so much that they were merged earlier this year. Five years ago, RIDA and RIDGE managed $15bn and $14.3bn, respectively. Today the combined RIDA fund manages just $3.6bn.
All told, nearly two-thirds of Renaissance’s external assets under management have evaporated over the past five years, falling from $65.1bn to $23.2bn today.
This is not NEW news. The assets of these funds are actually up a little from the lows of 2023. Most of the exodus happened in 2020-21, after an unusually shocking performance by Renaissance when Covid-19 rattled markets. RIEF declined 19.9 per cent in 2020, while RIDA lost 31.9 per cent.
The performance was so bad that the hedge fund manager sent a rare but not very elucidating letter to investors trying to explain the reversal as just one of those things that happens:
Although recent performance has been terrible and worse than prior performance would have suggested was likely for 2020, in track records as long as ours, some risk-return ratios every bit as bad as the ones we are now seeing are not shocking . . . Obviously, large positive or negative returns are more likely when volatility is high, as that is basically the definition of volatility.
In contrast, Medallion ended 2020 up 76 per cent, the WSJ reported at the time. The external funds employ very different strategies to Medallion, which does higher-frequency trades with a much lower capacity (which is why it’s been internal money-only for almost two decades), but the optics weren’t great.
That led to Renaissance haemorrhaging money, even as performance picked up in 2021. RIEF and RIDA returned 14.6 per cent and 20.1 per cent respectively that year.
What’s interesting is that while performance has steadied, money has continued to seep out since then. The last two years were middling-to-poor for RIEF and RIDA, but not catastrophic. And so far this year the former is up 19.8 per cent and the latter has returned 17.4 per cent, according to a person familiar with the matter.
While RIEF’s assets are up from the 2023 low of about $16.8bn, the gains appear to have been all or virtually all thanks to performance, not flows.
Renaissance’s internal vs external funds issue came up in FTAV’s conversation with AQR’s Clifford Asness last year. He is in awe of Medallion — both the strength and the consistency of its returns are without parallel in the hedge fund industry — but having reverse-engineered their public funds Asness reckons they are fairly standard quant hedge funds that mine pretty well-known factors.
As he told us:
Their entire challenge is capacity. They kicked out all the outside investors [from Medallion] and they take out a few billion dollars from the market every year for a rather small group of people. I’m not sneezing at that, but their problem that they are trying to solve is just entirely different than ours.
. . . When they do something at institutional size for outside investors they look human. They look like solid quants, but not amazing. Nothing from their Medallion fund seems to seep into their more public stuff. There, they look like the rest of us pedestrian bus driver quants.
This seems to be a decent summary of what has happened with Renaissance’s external funds (setting aside whether pedestrians can be bus drivers).
For years it was able to easily raise money for RIEF, RIDGE and RIDA on the back of Medallion’s fantastic but capacity-constrained results. Yes, investors were told what the differences were — there’s a decent summary of what the different funds do in this 2020 SEC filing — and chunky losses in 2008 disabused investors of any notion that they were getting Medallion. But investors clearly hoped that some of that Medallion magic was still present in the public funds.
After all, Renaissance’s rocket scientists are good at what they do, and for a long period the three external funds did well as well. Returns weren’t Medallion-like, but they were very good. Notably, RIEF’s results stayed solid and RIDA’s were at least positive even in 2018-19, when the “quant winter” hammered the likes of AQR. That added to the sense that Renaissance was untouchable – the quant GOATs.
But the financial chaos triggered by Covid short-circuited many of the longer-term, higher-capacity strategies run by Renaissance, and shattered the illusion of near-invincibility.
This shouldn’t have been a surprise, given how unprecedented the pandemic was. As one former RenTech executive told Bloomberg back in 2020: “Renaissance isn’t magic. If Martians invade, they haven’t got a model for Martians invading.”
But once an illusion is shattered it is hard to restore. Investors are once again painfully aware that Renaissance’s external funds are nothing like Medallion, so money has continued to dribble out in subsequent years.
That said, the returns that RIEF and RIDA have been putting up this year are hardly “pedestrian bus-driver quant” stuff. RIDA is already enjoying its best year in at least a decade, and another decent month will mean RIEF will also have notched up its best year since at least 2012.
Eventually the quant summer will probably unthaw RenTech’s flows as well.
Further reading:
— How Did Jim Simons’s Firm Make $100 Billion? (WSJ)
Read the full article here
