Renaissance Technologies is suffering through perhaps its toughest stretch of performance in recent memory.
Two of the East Setauket, New York–based firm’s three funds that are open to outside investors are not only losing money but coming up far short of their self-imposed mandates. For example, the Renaissance Institutional Equities Fund, whose net-long investment strategy trades both U.S. and non-U.S. equity securities listed on U.S. exchanges, was down 2.09 percent for the first six months of the year after losing 3.43 percent in June alone. This compares with a 7.1 percent gain for the S&P 500 during this period, including dividends reinvested. This means RIEF is trailing the benchmark by more than 1000 basis points, or 10 percentage points.
Keep in mind that the fund was created to generate gross annual returns of 400 to 600 basis points, or 4 to 6 percentage points, above the S&P 500 over rolling three- to five-year periods using average leverage of about 2.5 to 1. In 2013 the fund rose 17.6 percent. But this was a little less than half the 32 percent gain for the S&P 500. So it underperformed by 14 percentage points. In 2012, the fund lagged the index by 6 percentage points. RIEF did exceed the benchmark by 3,200 basis points in 2011, which makes the most recent 3.5-year period of performance not so bad given the fund’s stated goal. It also exceeded the S&P 500 by 45 basis points in 2010.
Meanwhile, the Renaissance Institutional Diversified Alpha Fund has struggled since its March 1, 2012 launch. The fund, which trades stocks listed on U.S. exchanges as well as futures and forwards, was down 3.50 percent in the first half of this year after losing about 3.70 percent in June alone. In 2013 it posted its only profit — gaining 7.1 percent — while in its first partial year of trading it reported a 1.28 percent loss.
The only somewhat bright spot for the firm’s open funds in the first half was the Renaissance Institutional Futures Fund, which employs an absolute return investment strategy that uses leverage to trade global futures and forwards, aiming for low correlation to other asset classes. It was up 3.88 percent for the first half of the year, placing it in the middle of the pack among the larger systematic futures funds. The fund was profitable last year — a pretty good accomplishment for the strategy — rising 2.15 percent, after losing more than 3 percent in 2012.
Renaissance is showing improvement in a couple of its funds in July. RIEF is up 3.4 percent for the month through July 11 and is now up 1.61 percent for the year to date. RIDA is up 1.95 percent, trimming its loss for the year to 1.3 percent. However, RIFF is down 1.58 percent so far in July and is now up only 2.18 percent year to date.
It is not known at this point how the firm’s flagship Medallion Fund — long closed to all but partners and employees — is faring this year. However, it is only believed to have had one losing year, in 1989, when it posted a decline of 4.1 percent in its first full year of operation.
Medallion then went on a remarkable streak that created Simons’ legend, posting net gains ranging between 31.5 percent and 70.7 percent over the ensuing seven years and peaking with a 98.5 percent gain in 2000. The fund gained more than 70 percent in 2007 and 84 percent in 2008, when most hedge funds and other investors imploded amid the global financial crisis.
These returns are net of the firm’s famously high fees. It has charged a 5 percent management fee since inception, compared with 1 to 2 percent for most hedge funds. Medallion charged a 20 percent performance fee through 2001; in 2002 the firm raised its performance fee to 36 percent and cranked it up to 44 percent after that.
Small wonder Simons is widely considered to be the greatest hedge fund manager of all time. As a result, he is the only hedge fund manager to qualify for Alpha’s annual Rich List in all 13 years, earning more than $20 billion over that period. In 2013, he earned $2.2 billion, ranking fourth on the list.
These days he serves as founder and non-executive chairman of Renaissance. He spends most of his time working with various charities and his foundation. We noted last week that he and his wife Marilyn announced they had given $50 million to Cold Spring Harbor Laboratory to establish the Simons Center for Quantitative Biology to conduct research into cancer, autism, bipolar disorder and depression.
