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The very popular Acquired Podcast series takes another deep dive into a fascinating company, this time in the world of hedge funds. Renaissance Technologies (or RenTech as it is commonly referred to) is seen as being the best investment firm of all time. Their long-term performance track record isn’t arguably the best, it is the best. RenTech is an investment firm, which according to their website has ~300 employees of which there are ~90 PhDs across fields such as maths, physics, and computer science. According to the podcast hosts, most of the employees of the investment side of the business do not come from careers in the investment industry, in fact a lot don’t have much knowledge of investment markets, nor know how to read a balance sheet. How can this be?
The history of RenTech is that it was the birthchild of the late Jim Simons, a former renowned mathematician and former wartime code breaker. After a career as an academic which culminated in establishing one of the world’s leading mathematics departments at Stony Brook University on Long Island NY, Simons gathered many of the same brilliant minds to join him on his quest of quantitatively outperforming financial markets. Quantitative trading is its own unique world whereby speed, patterns and signal processing matters.
RenTech is such a secretive organisation (with every former employee signing a lifetime non-disclosure agreement) so facts are hard to come by, however what we do know is that they appear to have >40 years of developing proprietary quantitative trading strategies, whereby everyone is working on the same system, strategy and code. They might not have been the birthplace of A.I. but with the sheer volume of compute power and data coupled with the brilliant minds behind it, it appears they managed to create (and continually refine) a system which has seen them significantly outperform the market across all market cycles for a very long period of time. Closed to investors outside of their own employees and alumni, it is estimated that they have generated a financial windfall to the tune of ~US$60bn for themselves since inception. For those looking to learn more, there is a book about Jim Simons called ‘The Man Who Solved The Market’. The title of this book seems very accurate!
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