Is Renaissance Technologies Falling off the Mark?

January 30, 2013   Stephen Taub

James Simons' quant vehicles turned in disappointing returns in 2012.

Renaissance Technologies Corp., the $22 billion brainchild of quant whiz James Simons and one of the more consistent outperformers in over the past two decades, appears to be losing some of its shine.

Last year its Renaissance Institutional Futures Fund (RIFF) lost 3.17 percent, versus a gain of just 1.84 percent in 2011. The loss in 2012 was worse than the average 1.59 percent decline reported by the Barclays CTA Index, though its profit in 2011 was better than the average CTA, which lost money that year as well. The fund employs an absolute return investment strategy that mainly trades futures and forwards throughout the world.

Given that RIFF has been a money-making product of Simons' Ph.D. experts, it comes somewhat as a surprise to see its returns falling in line with the industry norm. At year-end the fund had $788 million in total assets, down from $4 billion in 2011. (Many of the partners and insiders shifted money from RIFF to a new fund, Institutional Diversified Alpha Fund, in the past year.)

Renaissance Institutional Equities Funds (RIEF), whose net-long investment strategy trades both U.S. and non-U.S. equity securities listed on U.S. exchanges, had a slightly different story, but not significantly better: It was up 8.43 percent in 2012.

This was a disappointing outcome for the East Setauket, New York–based firm, considering that it's about half of what the S&P 500 returned in 2012 and the fund was created to generate gross annual returns of 400 to 600 basis points above the S&P 500 over rolling three- to five-year periods. Over the past three years, RIEF managed to do that only on a cumulative basis. In 2012, the fund lagged the index by 600 basis points, but it exceeded it by 3,200 basis points in 2011 and by 45 basis points in 2010. The fund had $5.7 billion at the end of 2012.

The Institutional Diversified Alpha Fund, launched on March 1, did not quite have a blockbuster debut performance, reporting a 1.28 percent loss. The fund, with $4.9 billion in assets under management at year-end, trades stocks listed on U.S. exchanges as well as futures and forwards.

Not much is known about a fifth fund, Kaleidoscope, a fund-of-funds of undetermined size that invests in each of the fund families.

Of course, the performance of Simons' legendary Medallion Fund, which had been known to regularly produce returns of 40 to 80 percent per year net (after Renaissance gets its 5 percent management fee and 44 percent performance fee), is a closely guarded secret, and one that has drawn intense speculation. The fund, employing a short-term, quant strategy across many asset classes, has been closed to outside investors for years.

By some reckoning, the fund is believed to have generated returns of at least 30 to 40 percent in 2012, although they may have been much higher than that, according to sources. Assets under management stood at $9 billion at the beginning of 2011. 

Firmwide assets under management now stand at $22 billion, from $20 billion in 2011. RIFF, RIEF and DAF together contribute about half the total. A big chunk of the capital is said to belong to Simons and other insiders. 

Peter Brown and Robert Mercer took over as co-CEOs in 2010, the culmination of a succession plan that was set in motion back in 2002.

While not involved in day-to-day operations, Simons, an award-winning mathematician, remains as nonexecutive chairman of the firm and guiding force. Simons also heads Euclidean Capital, a family office.

An avid philanthropist, Simons has given large sums of money away, including to the State University of New York at Stony Brook, where he earlier served as chairman of its math department and created Math for America, a program that trains and places math and science teachers in high schools.

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