For years, Renaissance Technologies was one of the most exalted names in high finance, as close to a security as Wall Street. But in recent months, its reputation has eroded, and investors are now flocking to the exits.
Renaissance has seen at least $ 5 billion in redemptions since Dec. 1 – a once-in-a-lifetime reprimand from customers following unprecedented losses from the East Setauket New York firm.
The strike comes after three public funds fell by double digits last year, and their computer models flared up due to the rapid stock market crash and even faster recovery.
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Renaissance now finds itself in a position different from its 40-year history: it tries to convince investors to once invest in their funds that it is still worth their money and that they can be trusted to deliver market returns.
Renaissance’s terrible 2020
Last year was the worst record for its largest fund, RIEF
Source: investor documents
A spokesman for the firm declined to comment.
Money maker
Renaissance was founded in 1982 by Jim Simons, a former code breaker for the National Security Agency, and is the world’s largest quantitative hedge fund business. Its reputation is largely based on the success of its Medallion fund, which has achieved an average return of around 40% per annum since its inception in 1988.
Medallion was initially launched as a systematic, trend-following fund trading in commodity markets, and after the first six months lost money and underwent a boom that led to its beautiful performance.
The company realized after about 15 years that there are limits to the amount the fund can manage without putting too much pressure on the markets, Simons said in a maintenance in early 2019. Renaissance therefore removed the remaining outside investors in 2005 and has since tried to limit the size of Medallion, which Bloomberg had previously calculated at about $ 10 billion.
The success of 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 his resignation as chairman of the firm, which at the time managed about $ 60 billion. He will remain a board member.
With Medallion closed, Renaissance has three funds for outsiders. The largest, Renaissance Institutional Equities fund, had assets of more than $ 30 billion last year.
Clients drew a net $ 1.85 billion across the three public funds in December and demanded a net $ 1.9 billion in January, according to investor letters seen by Bloomberg. Investors plan to snatch another $ 1.65 billion this month, the letters show.
These figures can be offset if there is an inflow in February or if investors decide to push back their repayment requests.
Underperformance
RIEF lost 19% in 2020, according to the letters. The fund received most of the redemptions. The Institutional Diversified Alpha Fund decreased by 32% and the Institutional Diversified Global Equities Fund decreased by 31%. Medallion scored 76%, according to Institutional Investor.
The problems for public funds began early last year when the Covid-19 pandemic toppled U.S. stocks. Renaissance said in an April letter to investors that its trading systems added market exposure in early January and later in the first quarter reversed the rate based on its estimates on the beta model. RIEF ended the three-month period with 14%, compared to a loss of almost 20% for the S&P 500, including dividends.
The firm said in the April letter that it “explores a number of ideas on how to improve both the beta models and the control systems used by these models.”
The shares recovered after the dive in the first quarter, and the S&P gained 47%, including dividends, from April to December. Renaissance said in a September letter to customers that the losses up to that time were due to the under-coverage during the March collapse and then too much hedging amid the April-June gains. This happened because the trading models ‘compensated’ too much for the original problems.
Renaissance once again addressed its bad numbers in a December letter.
‘Although recent performance has been terrible and worse than previous performance would have predicted, it is likely to be for 2020,’ the company said, ‘a number of returns are expected to be just as bad in the records we now see. , is not shocking. ”
The broader lesson is that ‘one can expect even good investments to perform terribly from time to time’, he said.
LOSS fell a further 9.5% in January.