In 2002 when Renaissance announced that they are returning most of the outside investors money, many investors were disappointed. Renaissance Technologies Corp’ Medallion fund has for years given very high returns. The process of returning money to investors finally completed in 2005. But the returns hungry investors were not left without an option. They were given the option of investing in yet another promising fund from Renaissance which started sometime in mid 2005. Renaissance wants to reserve the rights of investing in Medallion to a chosen few including employees, their families and some friends. The reason for this is evident. The fund has been returning over 34% annually for the past 15 years and the hedge fund managers want the benefits to be shared amongst the chosen few. The fund has return over $7 billion and currently manages only $5 billion. Medallion has been known to trade in and out of a vast array of global securities, including commodities, stocks, bonds, currencies and options.
The outside investors are clearly not happy with this despite the fact that they had to pay very high asset management and fund performance fee. When the entire industry charges a management fee of 2%, Medallion fund charges 5% of assets under management. Apart from this, the fund takes a whooping 44% of profits above watermark when the industry standards hover around 20%.
Renaissance has however invited investors to invest in a relatively new fund launched in mid 2005. The statistical predictive modeling of the fund ensures that the fund can handle up to $100 billion which is in sharp contrast with the capability of Medallion. As such more and more investors can now invest in the fund. However the two funds are somewhat different in their overall approach on investing. The new fund will be restricting its investment to US equities which is a relatively small pool when compared with the global security diversity of Medallion. Apart from this, the new fund is designed for mostly ‘long’ strategy where as Medallion, does more "shorting" and trades more quickly. Apart from this, the fund requires the investor to put in at least $20 million in the fund. Another key differentiator is that the investors can chose from four different fee structures.
Both the funds are managed by financier James Simons. He was formerly a math professor at MIT, Harvard and SUNY Stony Brook. His consistent par excellence performance has catapulted him to the level of industry stalwarts like George Soros, Paul Tudor Jones and Bruce Kovner.
The new fund is based on a model created by dozens of mathematicians, statisticians, scientists and even astronomers. It is managed out of 50-acre facility in suburban Stony Brook, New York. The mega computers employed at the facility are programmed to do high level data and number crunching in order to give good and reliable predictions.
Despite the high pedigree of the new fund, some investors are skeptic about the overall performance of the fund. Some feel that the mere fact that the fund ultimately plans to invest $100 billion on the market can force it to take large positions in illiquid smaller stocks and therefore hamper exits.
Despite what ever apprehensions that the skeptics may have, the fund has already garnered $4 billion and promises to pull more. On their part Renaissance has assured investors that the growth of assets of the fund will be gradual. If at any point the model falters, the fund will stop pouring money into it without taking it to $100 billion, its predicted ceiling. Reuters reports:
“So far, investors have not been shy, ponying up more than $4 billion for the new Institutional Equities Fund since opening in mid-2005, according to people close to the situation.”
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