Renaissance clients pull out after firm's rotten run of results

New York

FOR years, Renaissance Technologies was among the most exalted names in high finance, as close to a sure-thing as Wall Street had. But recent months have battered its reputation, and investors are now streaming to the exits.

Renaissance has seen at least US$5 billion in redemptions since Dec. 1 - a once-unthinkable rebuke from clients after unprecedented losses from the East Setauket, New York-based firm.

The walkout comes after three funds open to the public fell by double digits last year, their computer models flummoxed by the rapid stock market crash and even faster rebound.

Renaissance now finds itself in a position unlike any other in its near 40-year history: Trying to convince investors who once clamoured to get into its funds that it's still worth their money, and can be trusted to deliver market-beating returns.

A spokesperson for the firm declined to comment.

Founded in 1982 by Jim Simons, a former codebreaker for the National Security Agency, Renaissance is the world's largest quantitative hedge fund firm. Its reputation was built largely on the success of its Medallion fund, which has average returns of about 40 per cent a year since its inception in 1988.

Initially launched as a systematic, trend-following fund that traded in commodities markets, Medallion was losing money after its first six months, and underwent a revamp that led to its stunning performance.

The company realised after about 15 years that there were limits to the amount the fund could manage without pushing markets too much, Mr Simons said in an interview in early 2019. So Renaissance removed remaining outside investors in 2005, and since then has sought to limit Medallion's size, which Bloomberg has previously calculated at about US$10 billion.

Renaissance's success has made Mr Simons one of the world's richest people, with a fortune of about US$23 billion, according to the Bloomberg Billionaires Index. Last month, he announced he was stepping down as chairman of the firm, which managed about US$60 billion at the time. He will remain a board member.

With Medallion closed, Renaissance has three funds for outsiders. The biggest, Renaissance's Institutional Equities Fund (RIEF), last year had more than US$30 billion in assets.

Clients pulled a net US$1.85 billion across the three public funds in December and requested a net US$1.9 billion back in January, according to investor letters seen by Bloomberg. Investors are poised to yank another US$1.65 billion this month, the letters show.

Those figures could be offset if there are any inflows in February or if investors decide to walk back any of their redemption requests.

RIEF lost 19 per cent in 2020, the letters show. That fund got the biggest chunk of the redemptions. The Institutional Diversified Alpha fund dropped 32 per cent and the Institutional Diversified Global Equities fund fell 31 per cent. Medallion gained 76 per cent, according to Institutional Investor.

Trouble for the public funds began early last year as the Covid-19 pandemic rattled US stocks. Renaissance told investors in an April letter that its trading systems added market exposure in early January and then reversed course later in the first quarter based on its beta model estimates.

RIEF ended the three-month period down 14 per cent, compared with a loss of almost 20 per cent for the S&P 500, including dividends.

The firm said in the April letter that it was "vigorously exploring a number of ideas on how to improve both the beta models and the control systems that make use of these models". Stocks rebounded after the first-quarter plunge, with the S&P gaining 47 per cent, including dividends, from April through December. Renaissance told clients in a September letter that its losses to that point were due to being under-hedged during March's collapse and then over-hedged amid the gains from April through June. That happened because its trading models "overcompensated" for the original trouble.

Renaissance again addressed its dismal numbers in a December letter.

"Although recent performance has been terrible and worse than prior performance would have suggested was likely for 2020," the firm said, its model "anticipates that in track records as long as ours, some risk-return ratios every bit as bad as the ones we are now seeing are not shocking."

The broader lesson is that "one should expect even good investments to perform horribly from time to time," it said.

RIEF slumped a further 9.5 per cent in January. BLOOMBERG