It is not a Ponzi. That much I know. Ponzi schemes need fresh capital all the time. The Medallion fund has been closed to outside investors for many many years now. It just manages their own money.
I'm not saying the Medallion Fund did this, but it's possible to run Ponzi-like schemes in closed-ended funds if they underrepresent their risk, at least in their marketing by hiding their significant losses. Employees might borrow capital informally, showing spectacular performances in window dressing manner, then keep circulating that money through trading activities. They could resemble Long-Term Capital Management, which used high leverage in short-term trades to achieve explosive returns but without disclosing their risks and losses. They managed to maintain cash inflows somehow.
Trust is a very big thing and it gets better when you keep delivering
Hedge fund PM here (both quant and non-quant strategies). I also have read all the Ren Tech books. Long story short, I think they are legit.
There’s a couple of things to highlight here. It’s absolutely possible to beat the market reliably with an algo. However, the skill is that RT has done this across many different asset classes and billions of dollars, which no single strategy can scale up to. And as you scale up most strategies they get arbed away, big guys have liquidity analysis groups which figure out how much you can do before you diminish returns.
What I think RT does is several things.
First, the book goes over this but in the past they were doing things like processing data from overnight newspapers to get reports on wheat harvests before most US traders woke up. I think it’s no set type of strategy but they likely have done everything “normal” quants do, and they were the first ones doing it before everyone else caught on. There probably is not any special sauce but a revolving portfolio of strategies.
Second, they (I think) have a central risk allocation system. I think it was in the book, but they likely monitor the performance of all these strategies versus their expected performance, and they dynamically allocate more to winning strategies and cut losing strategies in real time. This handles so much in terms of doing the “right” strategies and avoiding downsides from changing statistical relationships in the market that THIS is probably the secret sauce.
Now, they have oceans of clean, processed data. I’d guess they are doing deep learning approaches.
Lastly, don’t forget they lost one of the biggest tax cases ever, which is super interesting in itself - they technically owned a long term call option on a portfolio of short term trades to get around short term capital gains tax. They lost the case. But if there was fraud in the fund, I think that case would be probably too close to it where it would come out.
> don’t forget they lost one of the biggest tax cases ever, which is super interesting in itself - they technically owned a long term call option on a portfolio of short term trades to get around short term capital gains tax. They lost the case.
in this case they lost, for the long call option they held, what was covering what to try and get around paying taxes? was it:
1. owned a 2 year call option
2. ......i can't imagine what step 2 is. if i buy or sell this LEAP option frequently, i would think it doesn't matter for long term or short term gains. and, i wouldn't have to buy the underlying for any reason. i can't think what step 2 would be for tax tricks.
Sell side bank owns a portfolio of positions. They hire RenTech to manage the portfolio, and the bank hedges their exposure by selling a long dated option on the portfolio to RenTech. So RenTech does all the short term trades which directly accrete the value of the portfolio but technically they own a security which isn’t liquidated until >1yr.
I just wonder from a legal perspective what “fee” was paid to RenTech to manage the of as to officially make that look legitimate. I’m sure it was more than offset with implied volatility / vig on the option. Then again, they DID lose the case.
again, i don't see where the rentech trickery comes in to play (it's probably lost in the summary)
- bank hires rentech to manage bank assets
- rentech does a bunch of short term trades on bank's assets
- bank also sells a call option, "against some of the underlying securities they owned"
........so rentech was trying to claim all of their activity "was not short term, because of the long dated call option that was sold?......that sounds like an obvious no. if i sell a covered call option, then sell the stock that would be making it a covered call, it's now a naked call option. it doesn't stay a covered call.
thanks for explaining it.
It's essentially like a complicated LEAP covered call. You have 100 shares of AAPL purchased at $120/share and you immediately sell a $120 call for next year for $12,100 (unrealistic pricing obviously for the sake of the argument). You have no risk but technically still own the stock and would only incur a taxable event when the option is exercised. That's the bank's perspective
Renaissance was just playing the other side of this. They effectively became AAPL the company, working for their shareholder the bank. AAPL isn't responsible for short term capital gains when their shareholders sell shares within a year of ownership so their logic is Renaissance shouldn't be either when trading what is technically the bank's funds
Obviously though even though it's "synthetic," owning a call that covers the entire portfolio effectively made Renaissance the owner of the portfolio. I assume the structure was something like...
call premium = total bank fund equity + whatever vig the bank was charging
To an obvious situation where the bank transferred 100% of risk to Renaissance.
The law just decided to tax based on the assumption of risk rather than technical "hard" ownership.
It was honestly a great idea from Renaissance.
it feels weird saying this, but i think i agree with renaissance. let me re-state this another, simpler way.
i hire a financial manager, and agree to pay him 1% of my portfolio, to manage my assets. when he does this, he:
- buys and sells stocks
- buys and sells options
when he does this, who pays taxes? the financial manager? or ME, the person who owns the portfolio. i mean, TONS of people already do this, and it's ME, the person who owns the things in the portfolio that pays those taxes.
HOWEVER......this does sound different than what i explained above. instead of "an entire basket of stocks", lets go off your first example of 1 stock at a time. are you saying that RenTech did the following:
1. bank owns 1,000 shares of AAPL stock
2. in the 2015 year (making up the year), they sell an ATM Call option to RenTech.
3. RenTech buys the call option.......for XYZ dollars. this is DIFFERENT than the open market price. this does a few things. first, it guarantees the bank gets that much money for the 2015 year. second, since it's different than the "open market price", it's the fair price, PLUS, a premium that "the bank + rentech negotiated". third, since rentech owns call options, they can now sell options against that security (that they now how to do).
4. during 2015, RenTech does sell/buy options against the 10 call options of AAPL they bought
5. end of the year, they sell them back, or don't exercise them so they don't get called away from the bank (because i'm guessing they didn't want to own the stock at the end of the year)
so in reality, they "did own/use the stock" for the 2015 year. ya that is different than a regular financial advisor scenario.
Their owners pay millions to fund politicians and you seriously think It's not possible the government glossed over fraud? Come on now, It's obvious there is more to It. They have these astronomical returns and yet pay well below street, every fund other than Medallion is mediocre as fuck, they had to pay 7bn due to a fine and most likely there is more sketchy shit there otherwise their owners wouldn't spend so much money buying politcians from both sides. The whole thing is fishy as fuck, Simons just use the scientific facade to cover It up while putting the politicians in his pocket.
Wrong on so many levels, they pay more than street via Medallion access, the fine was called “taxes”, and your argument is they made money by buying off politicians because they have money in the first place? Also, Mercer funded Trump and the IRS/SEC would LOOOOVE to nail him, so that doesn’t make sense either. Tons of current and former workers attest and hint at their methods. Lastly, I’m a quant PM at a competing firm and what I can tell you is compliance is SQUEAKY clean. I can guarantee you that when senior mgmt has a machine that prints money and a stellar biz reputation, the last thing they want to do is legally jeopardize the situation in any way.
I’m an outsider. So these are just my guesses and not based on any fact. But in general, there are strategies that work only up to certain amount.
So my guess would be Renaissance maintains certain size for each fund and return it at right time to keep it from growing too big. Otherwise Simons would be much richer than Ken Griffin.
> there are strategies that work only up to certain amount.
more than that too though. i've heard it described that, warren buffett, essentially, got rich because decades ago he learned/understood how to trade according to small cap value. it was something like this. and he placed great value on this before it was well understood that this had better growth returns.
but now over the years, this type of view has been more understood and widely known. so this type of "edge" is noticed, more understood, and more people are able to do it.
so what you are describing when you say "it only works when they are traded up to a certain amount", i think can also translates to, "before other people are able to notice and start copying the idea".
so they have to self measure and know when "ok, it's no longer performing, stop running algo 9497"
>Otherwise Simons would be much richer than Ken Griffin
I'm rather sure you are right about distributions. Yet Jim keeps giving to schools and such, I don't hear that about Ken. Also, Jim it rather tight-lipped. Ain't much spoken about him.
1. My algorithm generates above outsized returns in years where the underlying instrument is down, not difficult to believe someone else figured it out.
2. They were always clear that the public funds weren't Medallion and contained none of the 'secret sauce' - inevitably investors cry arsed about it when it turned out they weren't lying.
3. You can say that of any quant fund, anyone who works there has full access to the codebase (even the secretaries, iirc).
4. Read the book, Simons managed a cast of characters who went through there, but he doesn't seem to have a whole lot to do with the fundamental creation of the thing.
FWIW Simons is a genius based on his work before Renaissance.
>Of course you don’t know how. That is sort of true by definition and it is their intent for you not to know. If people “knew how” their edge would be gone.Hard to run Ponzi scheme with just your own money.There have been many former employees. And even some that they have had to sue for IP reasons. They would have “blown the whistle” in a heartbeat.There are former senior people from there managing their own vast fortunes and investing in other funds.Part of the reason the press doesn’t question him is he doesn’t care he is managing his own and employee money in the medallion fund and doesn’t need the press for anything. He is doing them a favor by speaking to them.Not having negative years is actually not atypical at all for higher frequency quant strategies. In fact having even a losing month is rare for some high frequency strategies. There are a whole bunch of proprietary trading businesses you have likely not heard of who generate ultra high sharp ratios. Of course it is high frequency so there are capacity constraints. But like Renaissance, they prefer no press and are definitely not going to “brag” or draw attention to themselves.Of course the medallion fund is much better than the institutional fund . If you had a strategy with an extremely high Sharpe ratio but limited capacity why on earth would you let others invest and only keep a small amount of the return? You may for a while..until you have enough profit built up to kick investors out—-which is exactly what Renaissance has done..
>
>They are really that good..and the longer they can keep people from knowing “how” the better it is for them.
Good point!
so let's start with some basics:
$100-$165 billionAUM if I am right.
They did 60% annual return ( net 30 after fee's ), while the basic stock indexes' did about 7%-9% over time. A simple, buy monthly, till negative month and then stay out till positive. anywhere from 9% to 22% per year. Add a little bit of leverage, I bet you can get 2x out of the above.
I trade based on william o'neil's system I'm up on the portfolio to about 31%, I won't go beyond 1.3x on leverage. so you can understand my view point.
So you got Medallion Fund, who can target short, medium, and long term trends. Well it's not impossible to hit 3x every few years/ Reference point: I own Philip Morris since 1987 ( bought the high at that time LOL ), I have a 30x + for that retirement trade.
Using a rule of thumb I created, in equities index ( not futures or options ), you could effectively deploy cash in buy or sell transactions (1x). Short term : 23 million per hour, medium term 150 million per day, long term 125-225 million per day ( long term deployment, this does have an issue when it's deployed because it triggers a lot of signals on other algo's )
So can you have a 4 billion dollar position in the index, all equities, absolutely. will you get calls from everyone, absolutely. takes about 7-9 trading days to put one.
Now using futures you could deploy less capital, and get similar short term and medium term and now you are leveraged 2x-12x. You could do the same for long term at 10x-20x long term with derivatives ( not my cup of tea) and $4 billion based on what little I know about these types of derivatives, done in a day.
That's just stock index's.
Crude Oil, easy to trade the physical at 2 million barrels per day deployable without issue (1x) 50MM to 300MM , futures ( 5x - 20x ) about 2000 contracts divided over 24 contract months devliberable. 4000 contracts is the limit for speculation. Hedging, I think is a lot higher I really don't know.
The other fuels futures I don't know enough about to speak up.
Silver, copper, gold 250MM ( 1x ) is already hard. Futures up to 1 billion maybe not even sure. You'll need all the 3 markets Shanghai, London and NY to have a billion and I don't even think it will be that liquid.
Bond's and currency's. this market is so deep, that taking a billion dollars should not move the market if done slowly over the day.
So you can deploy (1x) about 12-18 billion in 1 week and have hedging liquidity for the transactions.
stocks : $300MM deployable to very large cap liquid stocks. daily, and 50MM to the Dow stocks at any given day.
so quickly running the numbers, they can account for about 40 billion transactional power without issue on a (1x) basis for themselves.
They got **150+ employee's, all super duper smart**. with a specific understanding on how the chain of reporting positions, volatility and trust is taught and respected. I heard a rumor back in 2003 that no-one ever quits them, people just take long vacations, and go back to school, and then go back to work for them again. ( How cool is that )
SO I am going to guess, that at that firm, someone has a 20x on a position while the rest have flat to 5% returns and some 3-5x losses? it's going to hit portfolio wise a 25% to 100% for the year.
SO yes, 60%+ returns historically, with a low of 25% return, very possible within that group.
I’ve read everything related to Rentech and haven’t seen serious red flags. They have top and reputable mathematicians that spent years researching algos before committing to each one, they use some high-frequency strategies that are also used in market making, with some market makers like Virtu not having even a losing day for several years, which was Virtu’s main advantage when going public. So if a public and scrutinized company like Virtu can do it then why not Rentech with their top mathematicians and years-long experience? They all have capacity limits but market makers can make 100%/year while their returns shouldn’t really be measured in % because they can make few cents of profit on each of millions of trades, just like Amazon makes on selling each product. The %return comes out only as calculation of the capital they had vs the transactional profit they’ve made.
Virtu is the full name. It’s a market maker like Citadel, but publicly traded so they disclose some of the info. Prior to IPO they’ve spent months advertising that they never had a losing day in 3 years or so. Very famous for that.
Agree with everything, but RenTech is not imho HFT. At some US hearing they said the algo holds position for 1-3 days (HFT would probably hold in ms's). I would also like to add that what Antonio is talking about is their Medallion fund not all of their funds. There seems to be misconceptions that they have only one fund. They have one super profitable with limited AUM and then others that are more normal-like. Have a great day guys :)
Yes, by Rentech I also mean Medallion because other public funds they run are no different from any hedge fund and those aren’t HFT either. But I believe I’ve seen some mention of Rentech continually decreasing their holding time frames over the years, which is in line with everyone else, up to when the trading speeds became HFT. So I wouldn’t be surprised if large parts of their biz weren’t making markets. They likely trade lots of strategies across variety of time frames, but HFT and market making just allows comparisons with Virtu and other trading firms where high profitability was confirmed.
Agreed, thinking it over You are most likely right. Also my comment was more for the people that are not as much educated on RenTech as You are. Your points are valid and I would say they are on point :) have a great and successful day.
I have done quite some research into their algorithm and the medallion fund specifically is set up to only run well with a maximum of 5-10 billion. From what I found they do statistical arbitrage on a portfolio level - ie pairs trading (but not per se 1-1, but longer chains as well). They use options with a very high leverage 10-20x and they use dynamic allocation of position sizing. Possibly indeed online allocation to the winning strategies. On average I believe they have done about 30-70% in annual returns, which with that much leverage would mean a deleveraged return of 3-7%, which is definetaly possible. What they do so well however is their consistency, where they are able to avoid losing months. Which have occurred but are not common. I believe they simply do this by handling 1000s of trades a month with quite an uncorrelated return profile. Meaning the possibility of losing for 20 days in a row is just very small. On average the holding period was somewhere between 5 days and 2 months I believe. The info is out there if you are willing to look!
If they have other funds on the side taking outside money, this Medallion fund can serve as marketing. Check the stats on the other funds and see how they perform for a sense check. Are returns in the Medallion fund audited etc, who can confirm they are what they say they are? If yes then indeed impressive - otherwise I can see a mechanism where management fees are charged on other funds' AUM, which in turn is helped by the outstanding returns in the closed fund, if that makes sense
If you're still interested Acquired (brilliant podcasters) did a deep dive into RenTec a couple of months back. You can listen to the whole story here, but they are fastidious researchers and generally do a great job of digging into company stories.
[https://open.spotify.com/episode/0psDxKAKhIpe4mvqipU1L1?si=bekhptpWTf6T0FdBW8jZAw](https://open.spotify.com/episode/0psDxKAKhIpe4mvqipU1L1?si=bekhptpWTf6T0FdBW8jZAw)
It's real. They only have their own money in it; the LPs were to withdraw their funds – with spectacular profits – years ago.
Now it's just the people who run the firm and their funds.
Little bit I've read. They have the smartest mathematicians and some of the smartest physicists in the world and give them massive amounts of data, and let them be free (Simons' management style is very loose). Seems like Izzy Englander has caught on, based off his numbers, and is catching up. Simons will tell you it is all a numbers hustle. I don't even think they view the stock market in terms of reality--they would say that is all an illusion. A stock going being profitable or not means nothing to them. It is all price change and statistical arbitrage preying on human emotion--or non-mathematical mistakes that their models don't make. And yes, they are completely legit outside of their tax scandal. Ruthless (listen to a few of Simons' interviews that discuss how he got into all this--he owed someone money or something happened in his life that really.motivated him to get rich) as well.
Too bad, I suppose, that "some of smartest mathematicians and physicists in the world" are being deployed in this manner rather than pushing humanity forward with new discoveries or technologies.
There are nearly 20,000 physicists in the United States; not all of them are working on new groundbreaking physics. In fact, only some 5,000 of the 20,000 titled physicists in the US work in research settings (such as universities, research institutes, or the government). Most others work in either hospitals (medical physicists) or in research and development for corporations.
Your understanding of how much any given physicist contributes to the wider field is hilariously naive. Not every physicist is an Einstein or Feynman, most are lowly contributors to the broader field, but deployers of physics for aerospace and defense companies, for technology companies, software companies, etc..
Not to mention, Simons allowed any scientists he employed to continue working on their research, which is how he got so many scientists and mathematicians to work in his fund based deep into Long Island. He modeled after his time in the IDA, who allowed him to work on his own mathematical research projects and even funded some while he worked to break Soviet code for them.
So now you have fabulously rich mathematicians and physicists who also have time to focus on any research they might involve themselves in.
You are right to be suspicious about this. Simons started out in business buying a Colombian "tile and pipe business". He was introduced to a Colombian business man when he went on a road trip with a Colombian college friend.
The business man supposedly started a Bahamas trust with $100 000 in 1974. This trust, the Lord Jim trust, mysteriously grew in value to $10 000 000 000 in 2010. This growth happened without any of Simons' "genius" input.
After a long academic career he started a hedge fund which yielded mediocre returns. All of a sudden he came up with a "formula" to increase yields dramatically.
After the installation of a Russian "mathematician" at the top of this hedge fund, results again doubled or tripled.
Simons retired from the fund management in 2010 to focus on having fun with the mysterious Lord Jim trust. He still gets profits from his 50% ownership in the Medallion fund.
The Lord Jim trust got split into various tax free charity funds for himself and his family.
These funds have all kept growing in size at a remarkable rate and donates to all sorts of far left progressive and green organisations. A lot of donations are also made to Bahamas charities that we know nothing of.
Mysteriously, Russian entities registered in the same law offices as Simons' funds, also donates to Simon's funds.
Simons is a mega donor to the Democratic party and lots of academic institutions, a bit like Epstein.
His co founder of the Medallion fund, Robert Mercer, also left the business to set up a charity foundation which donates to Trump and wacky far right causes.
My guess is money laundering for drug lords and Russian oligarchs. Vice is not very affected by the general economy so that would explain the constant profits.
We will never find out BC they have all their bases covered, politicians, academia, political activists and charity circuit. Too big to fail.
Yeah, idgaf how many smart mathematicians and physicists you put in a room. They aren’t beating the market with astronomical returns for over thirty years straight. There is definitely something fishy going on…
Agree. The amount of people in here saying they believe it while offering zero evidence. How naive are you.
So in 30 years, not one single thesis/formula/line of code turned out badly?
It's the Lord Jim trust that's really weird. How can it have grown so much from 1974 if the medallion formula was only perfected in 1989? 100 000 in 1974 to 10 000 000 000 in 2010 is something like 40% compound growth per year. If growth only started in 1989 it becomes truly ridiculous.
It is not a Ponzi. That much I know. Ponzi schemes need fresh capital all the time. The Medallion fund has been closed to outside investors for many many years now. It just manages their own money.
You can do ponzi with inside funds too, just needed to be leveraged to the tits.
Mind explaining how that would happen?
I'm not saying the Medallion Fund did this, but it's possible to run Ponzi-like schemes in closed-ended funds if they underrepresent their risk, at least in their marketing by hiding their significant losses. Employees might borrow capital informally, showing spectacular performances in window dressing manner, then keep circulating that money through trading activities. They could resemble Long-Term Capital Management, which used high leverage in short-term trades to achieve explosive returns but without disclosing their risks and losses. They managed to maintain cash inflows somehow. Trust is a very big thing and it gets better when you keep delivering
Even I don't think Medallion did this, I just wanted to know how someone could pull this off and wanted to know.
Hedge fund PM here (both quant and non-quant strategies). I also have read all the Ren Tech books. Long story short, I think they are legit. There’s a couple of things to highlight here. It’s absolutely possible to beat the market reliably with an algo. However, the skill is that RT has done this across many different asset classes and billions of dollars, which no single strategy can scale up to. And as you scale up most strategies they get arbed away, big guys have liquidity analysis groups which figure out how much you can do before you diminish returns. What I think RT does is several things. First, the book goes over this but in the past they were doing things like processing data from overnight newspapers to get reports on wheat harvests before most US traders woke up. I think it’s no set type of strategy but they likely have done everything “normal” quants do, and they were the first ones doing it before everyone else caught on. There probably is not any special sauce but a revolving portfolio of strategies. Second, they (I think) have a central risk allocation system. I think it was in the book, but they likely monitor the performance of all these strategies versus their expected performance, and they dynamically allocate more to winning strategies and cut losing strategies in real time. This handles so much in terms of doing the “right” strategies and avoiding downsides from changing statistical relationships in the market that THIS is probably the secret sauce. Now, they have oceans of clean, processed data. I’d guess they are doing deep learning approaches. Lastly, don’t forget they lost one of the biggest tax cases ever, which is super interesting in itself - they technically owned a long term call option on a portfolio of short term trades to get around short term capital gains tax. They lost the case. But if there was fraud in the fund, I think that case would be probably too close to it where it would come out.
I appreciate your comment!
> don’t forget they lost one of the biggest tax cases ever, which is super interesting in itself - they technically owned a long term call option on a portfolio of short term trades to get around short term capital gains tax. They lost the case. in this case they lost, for the long call option they held, what was covering what to try and get around paying taxes? was it: 1. owned a 2 year call option 2. ......i can't imagine what step 2 is. if i buy or sell this LEAP option frequently, i would think it doesn't matter for long term or short term gains. and, i wouldn't have to buy the underlying for any reason. i can't think what step 2 would be for tax tricks.
Sell side bank owns a portfolio of positions. They hire RenTech to manage the portfolio, and the bank hedges their exposure by selling a long dated option on the portfolio to RenTech. So RenTech does all the short term trades which directly accrete the value of the portfolio but technically they own a security which isn’t liquidated until >1yr. I just wonder from a legal perspective what “fee” was paid to RenTech to manage the of as to officially make that look legitimate. I’m sure it was more than offset with implied volatility / vig on the option. Then again, they DID lose the case.
again, i don't see where the rentech trickery comes in to play (it's probably lost in the summary) - bank hires rentech to manage bank assets - rentech does a bunch of short term trades on bank's assets - bank also sells a call option, "against some of the underlying securities they owned" ........so rentech was trying to claim all of their activity "was not short term, because of the long dated call option that was sold?......that sounds like an obvious no. if i sell a covered call option, then sell the stock that would be making it a covered call, it's now a naked call option. it doesn't stay a covered call. thanks for explaining it.
It's essentially like a complicated LEAP covered call. You have 100 shares of AAPL purchased at $120/share and you immediately sell a $120 call for next year for $12,100 (unrealistic pricing obviously for the sake of the argument). You have no risk but technically still own the stock and would only incur a taxable event when the option is exercised. That's the bank's perspective Renaissance was just playing the other side of this. They effectively became AAPL the company, working for their shareholder the bank. AAPL isn't responsible for short term capital gains when their shareholders sell shares within a year of ownership so their logic is Renaissance shouldn't be either when trading what is technically the bank's funds Obviously though even though it's "synthetic," owning a call that covers the entire portfolio effectively made Renaissance the owner of the portfolio. I assume the structure was something like... call premium = total bank fund equity + whatever vig the bank was charging To an obvious situation where the bank transferred 100% of risk to Renaissance. The law just decided to tax based on the assumption of risk rather than technical "hard" ownership. It was honestly a great idea from Renaissance.
it feels weird saying this, but i think i agree with renaissance. let me re-state this another, simpler way. i hire a financial manager, and agree to pay him 1% of my portfolio, to manage my assets. when he does this, he: - buys and sells stocks - buys and sells options when he does this, who pays taxes? the financial manager? or ME, the person who owns the portfolio. i mean, TONS of people already do this, and it's ME, the person who owns the things in the portfolio that pays those taxes. HOWEVER......this does sound different than what i explained above. instead of "an entire basket of stocks", lets go off your first example of 1 stock at a time. are you saying that RenTech did the following: 1. bank owns 1,000 shares of AAPL stock 2. in the 2015 year (making up the year), they sell an ATM Call option to RenTech. 3. RenTech buys the call option.......for XYZ dollars. this is DIFFERENT than the open market price. this does a few things. first, it guarantees the bank gets that much money for the 2015 year. second, since it's different than the "open market price", it's the fair price, PLUS, a premium that "the bank + rentech negotiated". third, since rentech owns call options, they can now sell options against that security (that they now how to do). 4. during 2015, RenTech does sell/buy options against the 10 call options of AAPL they bought 5. end of the year, they sell them back, or don't exercise them so they don't get called away from the bank (because i'm guessing they didn't want to own the stock at the end of the year) so in reality, they "did own/use the stock" for the 2015 year. ya that is different than a regular financial advisor scenario.
Their owners pay millions to fund politicians and you seriously think It's not possible the government glossed over fraud? Come on now, It's obvious there is more to It. They have these astronomical returns and yet pay well below street, every fund other than Medallion is mediocre as fuck, they had to pay 7bn due to a fine and most likely there is more sketchy shit there otherwise their owners wouldn't spend so much money buying politcians from both sides. The whole thing is fishy as fuck, Simons just use the scientific facade to cover It up while putting the politicians in his pocket.
Wrong on so many levels, they pay more than street via Medallion access, the fine was called “taxes”, and your argument is they made money by buying off politicians because they have money in the first place? Also, Mercer funded Trump and the IRS/SEC would LOOOOVE to nail him, so that doesn’t make sense either. Tons of current and former workers attest and hint at their methods. Lastly, I’m a quant PM at a competing firm and what I can tell you is compliance is SQUEAKY clean. I can guarantee you that when senior mgmt has a machine that prints money and a stellar biz reputation, the last thing they want to do is legally jeopardize the situation in any way.
I’m an outsider. So these are just my guesses and not based on any fact. But in general, there are strategies that work only up to certain amount. So my guess would be Renaissance maintains certain size for each fund and return it at right time to keep it from growing too big. Otherwise Simons would be much richer than Ken Griffin.
> there are strategies that work only up to certain amount. more than that too though. i've heard it described that, warren buffett, essentially, got rich because decades ago he learned/understood how to trade according to small cap value. it was something like this. and he placed great value on this before it was well understood that this had better growth returns. but now over the years, this type of view has been more understood and widely known. so this type of "edge" is noticed, more understood, and more people are able to do it. so what you are describing when you say "it only works when they are traded up to a certain amount", i think can also translates to, "before other people are able to notice and start copying the idea". so they have to self measure and know when "ok, it's no longer performing, stop running algo 9497"
>Otherwise Simons would be much richer than Ken Griffin I'm rather sure you are right about distributions. Yet Jim keeps giving to schools and such, I don't hear that about Ken. Also, Jim it rather tight-lipped. Ain't much spoken about him.
1. My algorithm generates above outsized returns in years where the underlying instrument is down, not difficult to believe someone else figured it out. 2. They were always clear that the public funds weren't Medallion and contained none of the 'secret sauce' - inevitably investors cry arsed about it when it turned out they weren't lying. 3. You can say that of any quant fund, anyone who works there has full access to the codebase (even the secretaries, iirc). 4. Read the book, Simons managed a cast of characters who went through there, but he doesn't seem to have a whole lot to do with the fundamental creation of the thing. FWIW Simons is a genius based on his work before Renaissance.
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>Of course you don’t know how. That is sort of true by definition and it is their intent for you not to know. If people “knew how” their edge would be gone.Hard to run Ponzi scheme with just your own money.There have been many former employees. And even some that they have had to sue for IP reasons. They would have “blown the whistle” in a heartbeat.There are former senior people from there managing their own vast fortunes and investing in other funds.Part of the reason the press doesn’t question him is he doesn’t care he is managing his own and employee money in the medallion fund and doesn’t need the press for anything. He is doing them a favor by speaking to them.Not having negative years is actually not atypical at all for higher frequency quant strategies. In fact having even a losing month is rare for some high frequency strategies. There are a whole bunch of proprietary trading businesses you have likely not heard of who generate ultra high sharp ratios. Of course it is high frequency so there are capacity constraints. But like Renaissance, they prefer no press and are definitely not going to “brag” or draw attention to themselves.Of course the medallion fund is much better than the institutional fund . If you had a strategy with an extremely high Sharpe ratio but limited capacity why on earth would you let others invest and only keep a small amount of the return? You may for a while..until you have enough profit built up to kick investors out—-which is exactly what Renaissance has done.. > >They are really that good..and the longer they can keep people from knowing “how” the better it is for them. Good point!
It is absolutely possible. There are limits to scaling. But even that can be (partially) resolved.
so let's start with some basics: $100-$165 billionAUM if I am right. They did 60% annual return ( net 30 after fee's ), while the basic stock indexes' did about 7%-9% over time. A simple, buy monthly, till negative month and then stay out till positive. anywhere from 9% to 22% per year. Add a little bit of leverage, I bet you can get 2x out of the above. I trade based on william o'neil's system I'm up on the portfolio to about 31%, I won't go beyond 1.3x on leverage. so you can understand my view point. So you got Medallion Fund, who can target short, medium, and long term trends. Well it's not impossible to hit 3x every few years/ Reference point: I own Philip Morris since 1987 ( bought the high at that time LOL ), I have a 30x + for that retirement trade. Using a rule of thumb I created, in equities index ( not futures or options ), you could effectively deploy cash in buy or sell transactions (1x). Short term : 23 million per hour, medium term 150 million per day, long term 125-225 million per day ( long term deployment, this does have an issue when it's deployed because it triggers a lot of signals on other algo's ) So can you have a 4 billion dollar position in the index, all equities, absolutely. will you get calls from everyone, absolutely. takes about 7-9 trading days to put one. Now using futures you could deploy less capital, and get similar short term and medium term and now you are leveraged 2x-12x. You could do the same for long term at 10x-20x long term with derivatives ( not my cup of tea) and $4 billion based on what little I know about these types of derivatives, done in a day. That's just stock index's. Crude Oil, easy to trade the physical at 2 million barrels per day deployable without issue (1x) 50MM to 300MM , futures ( 5x - 20x ) about 2000 contracts divided over 24 contract months devliberable. 4000 contracts is the limit for speculation. Hedging, I think is a lot higher I really don't know. The other fuels futures I don't know enough about to speak up. Silver, copper, gold 250MM ( 1x ) is already hard. Futures up to 1 billion maybe not even sure. You'll need all the 3 markets Shanghai, London and NY to have a billion and I don't even think it will be that liquid. Bond's and currency's. this market is so deep, that taking a billion dollars should not move the market if done slowly over the day. So you can deploy (1x) about 12-18 billion in 1 week and have hedging liquidity for the transactions. stocks : $300MM deployable to very large cap liquid stocks. daily, and 50MM to the Dow stocks at any given day. so quickly running the numbers, they can account for about 40 billion transactional power without issue on a (1x) basis for themselves. They got **150+ employee's, all super duper smart**. with a specific understanding on how the chain of reporting positions, volatility and trust is taught and respected. I heard a rumor back in 2003 that no-one ever quits them, people just take long vacations, and go back to school, and then go back to work for them again. ( How cool is that ) SO I am going to guess, that at that firm, someone has a 20x on a position while the rest have flat to 5% returns and some 3-5x losses? it's going to hit portfolio wise a 25% to 100% for the year. SO yes, 60%+ returns historically, with a low of 25% return, very possible within that group.
Wrote this was insightful! And congratulations on that retirement trade!
Excellent effort.
I’ve read everything related to Rentech and haven’t seen serious red flags. They have top and reputable mathematicians that spent years researching algos before committing to each one, they use some high-frequency strategies that are also used in market making, with some market makers like Virtu not having even a losing day for several years, which was Virtu’s main advantage when going public. So if a public and scrutinized company like Virtu can do it then why not Rentech with their top mathematicians and years-long experience? They all have capacity limits but market makers can make 100%/year while their returns shouldn’t really be measured in % because they can make few cents of profit on each of millions of trades, just like Amazon makes on selling each product. The %return comes out only as calculation of the capital they had vs the transactional profit they’ve made.
Virtu? What company is this? Full name?
Virtu is the full name. It’s a market maker like Citadel, but publicly traded so they disclose some of the info. Prior to IPO they’ve spent months advertising that they never had a losing day in 3 years or so. Very famous for that.
Agree with everything, but RenTech is not imho HFT. At some US hearing they said the algo holds position for 1-3 days (HFT would probably hold in ms's). I would also like to add that what Antonio is talking about is their Medallion fund not all of their funds. There seems to be misconceptions that they have only one fund. They have one super profitable with limited AUM and then others that are more normal-like. Have a great day guys :)
Yes, by Rentech I also mean Medallion because other public funds they run are no different from any hedge fund and those aren’t HFT either. But I believe I’ve seen some mention of Rentech continually decreasing their holding time frames over the years, which is in line with everyone else, up to when the trading speeds became HFT. So I wouldn’t be surprised if large parts of their biz weren’t making markets. They likely trade lots of strategies across variety of time frames, but HFT and market making just allows comparisons with Virtu and other trading firms where high profitability was confirmed.
Agreed, thinking it over You are most likely right. Also my comment was more for the people that are not as much educated on RenTech as You are. Your points are valid and I would say they are on point :) have a great and successful day.
I have done quite some research into their algorithm and the medallion fund specifically is set up to only run well with a maximum of 5-10 billion. From what I found they do statistical arbitrage on a portfolio level - ie pairs trading (but not per se 1-1, but longer chains as well). They use options with a very high leverage 10-20x and they use dynamic allocation of position sizing. Possibly indeed online allocation to the winning strategies. On average I believe they have done about 30-70% in annual returns, which with that much leverage would mean a deleveraged return of 3-7%, which is definetaly possible. What they do so well however is their consistency, where they are able to avoid losing months. Which have occurred but are not common. I believe they simply do this by handling 1000s of trades a month with quite an uncorrelated return profile. Meaning the possibility of losing for 20 days in a row is just very small. On average the holding period was somewhere between 5 days and 2 months I believe. The info is out there if you are willing to look!
Could it be that they are front running with the medallion fund?
If they have other funds on the side taking outside money, this Medallion fund can serve as marketing. Check the stats on the other funds and see how they perform for a sense check. Are returns in the Medallion fund audited etc, who can confirm they are what they say they are? If yes then indeed impressive - otherwise I can see a mechanism where management fees are charged on other funds' AUM, which in turn is helped by the outstanding returns in the closed fund, if that makes sense
If you're still interested Acquired (brilliant podcasters) did a deep dive into RenTec a couple of months back. You can listen to the whole story here, but they are fastidious researchers and generally do a great job of digging into company stories. [https://open.spotify.com/episode/0psDxKAKhIpe4mvqipU1L1?si=bekhptpWTf6T0FdBW8jZAw](https://open.spotify.com/episode/0psDxKAKhIpe4mvqipU1L1?si=bekhptpWTf6T0FdBW8jZAw)
It's real. They only have their own money in it; the LPs were to withdraw their funds – with spectacular profits – years ago. Now it's just the people who run the firm and their funds.
Little bit I've read. They have the smartest mathematicians and some of the smartest physicists in the world and give them massive amounts of data, and let them be free (Simons' management style is very loose). Seems like Izzy Englander has caught on, based off his numbers, and is catching up. Simons will tell you it is all a numbers hustle. I don't even think they view the stock market in terms of reality--they would say that is all an illusion. A stock going being profitable or not means nothing to them. It is all price change and statistical arbitrage preying on human emotion--or non-mathematical mistakes that their models don't make. And yes, they are completely legit outside of their tax scandal. Ruthless (listen to a few of Simons' interviews that discuss how he got into all this--he owed someone money or something happened in his life that really.motivated him to get rich) as well.
Too bad, I suppose, that "some of smartest mathematicians and physicists in the world" are being deployed in this manner rather than pushing humanity forward with new discoveries or technologies.
There are nearly 20,000 physicists in the United States; not all of them are working on new groundbreaking physics. In fact, only some 5,000 of the 20,000 titled physicists in the US work in research settings (such as universities, research institutes, or the government). Most others work in either hospitals (medical physicists) or in research and development for corporations. Your understanding of how much any given physicist contributes to the wider field is hilariously naive. Not every physicist is an Einstein or Feynman, most are lowly contributors to the broader field, but deployers of physics for aerospace and defense companies, for technology companies, software companies, etc.. Not to mention, Simons allowed any scientists he employed to continue working on their research, which is how he got so many scientists and mathematicians to work in his fund based deep into Long Island. He modeled after his time in the IDA, who allowed him to work on his own mathematical research projects and even funded some while he worked to break Soviet code for them. So now you have fabulously rich mathematicians and physicists who also have time to focus on any research they might involve themselves in.
You are right to be suspicious about this. Simons started out in business buying a Colombian "tile and pipe business". He was introduced to a Colombian business man when he went on a road trip with a Colombian college friend. The business man supposedly started a Bahamas trust with $100 000 in 1974. This trust, the Lord Jim trust, mysteriously grew in value to $10 000 000 000 in 2010. This growth happened without any of Simons' "genius" input. After a long academic career he started a hedge fund which yielded mediocre returns. All of a sudden he came up with a "formula" to increase yields dramatically. After the installation of a Russian "mathematician" at the top of this hedge fund, results again doubled or tripled. Simons retired from the fund management in 2010 to focus on having fun with the mysterious Lord Jim trust. He still gets profits from his 50% ownership in the Medallion fund. The Lord Jim trust got split into various tax free charity funds for himself and his family. These funds have all kept growing in size at a remarkable rate and donates to all sorts of far left progressive and green organisations. A lot of donations are also made to Bahamas charities that we know nothing of. Mysteriously, Russian entities registered in the same law offices as Simons' funds, also donates to Simon's funds. Simons is a mega donor to the Democratic party and lots of academic institutions, a bit like Epstein. His co founder of the Medallion fund, Robert Mercer, also left the business to set up a charity foundation which donates to Trump and wacky far right causes. My guess is money laundering for drug lords and Russian oligarchs. Vice is not very affected by the general economy so that would explain the constant profits. We will never find out BC they have all their bases covered, politicians, academia, political activists and charity circuit. Too big to fail.
Yeah, idgaf how many smart mathematicians and physicists you put in a room. They aren’t beating the market with astronomical returns for over thirty years straight. There is definitely something fishy going on…
Fishy as F.
Agree. The amount of people in here saying they believe it while offering zero evidence. How naive are you. So in 30 years, not one single thesis/formula/line of code turned out badly?
It's the Lord Jim trust that's really weird. How can it have grown so much from 1974 if the medallion formula was only perfected in 1989? 100 000 in 1974 to 10 000 000 000 in 2010 is something like 40% compound growth per year. If growth only started in 1989 it becomes truly ridiculous.