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Renaissance Technologies – The father of quantitative finance

Founded in 1982 by a mathematician, Jim Simons, Renaissance Technologies (also known as RenTec) is a quantitative hedge fund. Renaissance Technologies, a quantitative hedge fund is a financial institution that pools money from investors and then uses mathematical and statistical models to make investment decisions. Some other notable examples of quantitative hedge funds are: D. E. Shaw, SIG and G-Research.

 

Who is Jim Simons?

Jim Simons was born in 1938 in Massachussets. After receiving his bachelor’s degree in mathematics at MIT, he went on to study for his PhD in mathematics at the University of California, Berkeley at the age of 23. After achieving his doctorate, Jim Simons was hired by the NSA (National Security Agency) to break Russian codes for the US during the Cold War. 

He established the fund after he was fired by the IDA (Institute for Defence Analysis) where he worked as a researcher. During his time at the IDA he was a lecturer at both MIT and Harvard for mathematics.


Renaissance Technologies is famous mostly for its best-performing fund called the Medallion fund. This fund, I believe, is best summarised by the following quote:

 “From 2001 through 2013, the fund’s worst year was a 21 percent gain, after subtracting fees. Medallion reaped a 98.2 percent gain in 2008, the year the Standard & Poor’s 500 Index lost 38.5 percent.”

— Rubin and Collins. June 16, 2015. Bloomberg

Although the Medallion fund is so successful, only employees of RenTech are allowed to invest in it. Since its creation in 1988, the fund has achieved a $100 billion profit from trading, translating to a 66.1% gross return.

 

Renaissance Technologies is also known for its extremely high entry requirements – of the 300 employees, 90 of them have PhDs in subjects such as mathematics, physics and statistics. According to Isadore Singer, a mathematician, RenTech has “the best physics and mathematics department in the world”. They steer far clear of hiring anyone with experience in finance; it is very much a firm run for and by scientists:

 

“Of his 200 employees, ensconced in a fortress-like building in unfashionable Long Island, New York, a third have PhDs, not in finance, but in fields like computer science, physics, mathematics and statistics. Renaissance has been called “the best physics and mathematics department in the world” and, according to Weatherall, “avoids hiring anyone with even the slightest whiff of Wall Street bona fides”.

— Sarfraz Manzoor, The Telegraph, 2013

 

As it is so successful, little to nothing is known about how the firm operates, what models it employs or how it invests. In fact, during the inception of RenTech, Jim Simons himself didn’t even understand the reasoning behind some of the strategies and he had a hard time trusting the computer’s suggestions. Jim Simons now ranks the 66th richest person in the world after stepping down as Chairman in 1982 and spends his time donating to political campaigns, running his foundation ‘Simons Foundation’ and general philanthropy.

 

Analyst: Bailey Arm

 

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