For years, Renaissance Technologies was one of the most exalted names in high-end funding, as close to a safe thing as Wall Street had. But the last few months have tarnished its reputation and investors are now heading for exits.
Renaissance has seen at least $ 5 billion in amortization since Dec. 1, an unthinkable reprimand from customers after unprecedented losses from the East Setauket, New York-based firm.
The exit comes after three funds open to the public shrank double-digit last year, their computer models falling in a rapid stock market crash and an even faster rebound.
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Renaissance is now in a different position than any other in its nearly 40-year history: trying to convince investors who once claimed to go into their funds that their money is still worthwhile and can be trusted. in them to obtain superior yields in the market.
Renaissance’s Terrible 2020
Last year it was the worst recorded for its largest fund, RIEF
Source: Investor documents
A spokesman for the firm declined to comment.
Money making machine
Founded in 1982 by Jim Simons, a National Security Agency counterpart, 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 40% annual returns since its inception in 1988.
Initially launched as a systematic fund and following the trends it traded in commodity markets, Medallion lost money after its first six months and underwent a renewal 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 pushing markets too far, Simons said in a interview in early 2019. Thus, Renaissance eliminated the remaining external investors in 2005 and has since tried to limit the size of Medallion, which Bloomberg had previously estimated at about $ 10 billion.
The success of the Renaissance has made Simons one of the richest people in the world, with a fortune of about $ 23 billion, according to the Bloomberg Billionaire Index. Last month, he announced he would step down as president of the firm, which at the time managed about $ 60 billion. He will remain a member of the board.
With Medallion closed, Renaissance has three backgrounds for outsiders. Last year, the Renaissance’s largest institutional equity fund had more than $ 30 billion in assets.
Customers got $ 1.85 billion net from the three public funds in December and asked for $ 1.9 billion net in January, according to investor letters seen by Bloomberg. The letters indicate that investors are willing to pull out another $ 1.65 billion this month.
These figures could be offset if there are entries in February or if investors decide to back down on any of their redemption requests.
Insufficient performance
RIEF lost 19% in 2020, according to the charts. This fund obtained the largest piece of the redemptions. The Alpha Diversified Institutional Fund fell 32% and the Diversified Global Equities Institutional Fund fell 31%. Medallion gained 76%, according to the institutional investor.
Problems for public funds began early last year as the Covid-19 pandemic shook U.S. stocks. Renaissance told investors in an April letter that its trading systems added market exposure in early January and then reversed the course later in the first quarter according to beta model estimates. RIEF closed the three-month period up 14%, compared to a loss of almost 20% for the S&P 500, including dividends.
The firm he said in the April letter that he was “vigorously exploring a number of ideas on how to improve both beta models and the control systems that make use of those models.”
Shares rebounded after falling in the first quarter, with S&P gaining 47%, including dividends, from April to December. Renaissance communicated to customers in a September letter that its losses so far are due to insufficient coverage during the March collapse and then to excessive coverage amid gains from April to June. This happened because their business models were “overcompensated” for the original problem.
Renaissance again addressed his sad numbers in a December letter.
“While recent performance has been terrible and worse than previous performance would have suggested it would be likely by 2020,” the firm said, its model “predicts that in the trajectory as long as ours, there will be how many risk-return indices as bad as we are now seeing are not impactful. “
The broader lesson is that “even good investments should be expected to work horribly from time to time,” he said.
CRIT it fell 9.5% more in January.