Basically, RT’s Medallion Fund claims to have generated the following annual returns using quant-based strategies since 1988:
BS meter is at about a 15/10 at this point. This has the show American Greed written all over it.
My theory is that this “employee-only” fund is a means for high level execs to siphon money from lower level employees contributing to the plan - a nice little ponze scheme.
What do you guys think is going on here?
It seems legit. Although i’m surprised they don’t have more down years. What fund doesn’t have a down year for 25 years?
"How much money an employee has in Medallion depends on his overall contribution to the firm—and collaboration is key to getting a bigger piece of the pie. Employees are awarded an allocation of shares they can buy. In addition, a quarter of one’s pay is deferred and invested in Medallion, where it stays for four years. Employees must also pay fees of as much as “5 and 44.”
LOL
I wonder why they REQUIRE employees to contribute 1/4 of their pay? Hmmm maybe b/c they need to keep the ponze afloat??? “Oh ya, and we’re going to charge you 5 and 44 on your contribution.” This is unbelievable.
So you wouldn’t want to work there?
Here’s a completely believable little nugget:
“In August 2007, rising mortgage defaults sent several of the largest quant hedge funds, including a $30 billion giant run by Goldman Sachs, into a tailspin. Managers at these firms were forced to cut positions, worsening the carnage. Insiders say the rout cost Medallion almost $1 billion—around one-fifth of the fund—in a matter of days. Renaissance executives, wary that continued chaos would wipe out their own fund, braced to turn down their own risk dial and begin selling positions. They were on the verge of capitulating when the market rebounded; over the remainder of the year, Medallion made up the losses and more, ending 2007 with an 85.9 percent gain. The Renaissance executives had learned an important lesson: Don’t mess with the models.”
No, I wouldn’t. This is clearly a house of cards and I’m not a fan of donating 1/4 of my salary to the CEO every year.
Investment frauds are generally perpetuated by small companies (think Madoff, Dreier). I find it very hard to believe that a firm this big would get away with something like that.
Even with a 25% pay cut, they are paid quite a lot over there, so from a salary perspective alone, it is still a good deal. The returns, yes, are extremely sketchy, as is the fact that they pushed out all client money in the face of an environment of increasing scrutiny. I don’t think it is a Ponzi scheme, but I would not be surprised by anything at this point.
Madoff was small? Anyway, imagine getting this original memo in your email. I can practically see the sh!t hitting the fan.
https://www.sec.gov/news/studies/2009/oig-509/exhibit-0293.pdf
Small firm size, yes. From what I recall, only had a few employees and even most of those were his family. As opposed to RenTech which has 290 employees…
I’d be more skeptical if they didn’t give money back. Ponzi schemes rely on getting bigger to work, while exploiting your edge has a limited universe. So at least their change is consistent. I personally always suspect cheating is more common than actual alpha generation given the incentives and difficulty for sustained out performance, so who knows how they are doing it. The owner is interesting to listen to
Nah, I think Madoff was at least 100 employees. RenTech is very interesting though, particularly with the recent political connections (Mercer/Bannon, etc).
Madoff had maybe $20 billion under management, while Resaissance has maybe $70 million. So the scale is a bit different. I have a feeling the leap from $20 to $70 billion is significant, more than say, $200 million to $700 million.
Of course, it could also be a mini Ponzi scheme. Maybe only a portion of the fund could be fraudulent and the rest legitimate.
Pretty sure it’s legit… dude used to be a code breaker for the NSA and pretty much a genius.
Renaissance is 300 employees and $39B AUM. I think an ungodly amount of leverage, an amount well beyond any private client mandate and that would make any regulator explode upon seeing, is at play.
Of course. I merely said that Madoff was not small, particularly at that time.
I’m going to repost this excerpt from the article:
“In August 2007, rising mortgage defaults sent several of the largest quant hedge funds into a tailspin. Managers at these firms were forced to cut positions, worsening the carnage. Insiders say the rout cost Medallion almost $1 billion—around one-fifth of the fund—in a matter of days. Renaissance executives, wary that continued chaos would wipe out their own fund, braced to turn down their own risk dial and begin selling positions. They were on the verge of capitulating when the market rebounded; over the remainder of the year, Medallion made up the losses and more, ending 2007 with an 85.9 percent gain. The Renaissance executives had learned an important lesson: Don’t mess with the models.”
So they took a 20% hit in August 2007, turned down the “risk dial”, sold positions, and were on the verge of collapse… when they claim the “market rebounded” and they ended the year with an 86% gain? First of all, what market rebound? There was no market rebound in 2007… Second, how does a portfolio that got crushed by the mortgage crisis in August end up with an 86% gain at the end of the year? Especially one that “turned down the risk dial”?
The guys at LTCM were “geniuses” too…
Finance world is full of “geniuses”, but none seem to have the scale or success of Renaissance. So it is a reason to ask questions at least.
And my exes dad got a phd from u chicago, worked for LTCM (who blew up even though they had the nobel laureates w them), was a head of research for a bb, and was head of a quant fund where they only hired ex google/facebook etc etc guys from top schools, and they were barely breaking even for years only seemingly having made money in 2008.