61–70 of 195 posts
Earlier quoted context omitted.
Financial experts aren’t stumped. The article found one guy who’s trying to get attention, but in general, folks are both impressed and pretty sure it’s real.
This was no expert, but an academic... those who can't do, teach...
https://en.wikipedia.org/wiki/List_of_Nobel_laureates_by_uni...
As the article hints at, Medallion isn't really an investment fund so much as a pool of capital which is employed in the business of providing tactical liquidity to markets. This is a business where one's competitive advantage rests upon their technological advantage, and Renaissance has been exceptionally adept at building and maintaining that advantage. The EMH is a theoretical concept that must be tempered to acco…
>Renaissance is simply better than anyone in the world at finding the markets where traders are willing to pay the highest premiums for liquidity, and providing it in a timely and measured dose that ensures they skim the cream off the profit opportunity. Why are they better? This still requires the same kind of explanation as 'they are simply better at investing than anyone in the world'
Possible explanation: there aren't any other firms founded by as great mathematicians as the founders of Renaissance. I saw a quote online attributed to them, something like: "We hire the A-grade mathematicians. Most other firms hire B and C grade mathematicians, and don't even know the A grade exists". This fits my experience, as a D-grade mathematician working in finance. Never heard of significant mathematical prizewinning researchers working at any of the firms I know (lots of maths olympians, but there's a huge difference between winning a maths olympiad and conducting groundbreaking mathematical research).
Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…
So there are (simplistically) two funds, Sucker and Winner. They take complementary positions, and, whichever one wins gets transferred to Winner.
So far so good. Winner is winning every bet, and Sucker is losing every bet.
Now you need people to put money into Sucker, because it has to come out the other end into Winner. How do you convince them to do that? By giving them a cut of Winner's profit?
But that's where things don't add up. How can the Sucker investors and the Winner investors both be making a profit from Winner's funds, if the net money going in and out of the combined funds is equal?
Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…
It's an interesting idea. You can make two funds sum up to a constant by taking opposite and equal positions. But I am not seeing how you can control the direction the money moves. For example if you knew fund A will gain $x and fund B will lose $x, shouldn't you simply not make the trade in fund B?
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Could they been moving money from their open to investments , less successful funds to the medallion fund? Maybe even thought the market via trades?
No, the medallion fund existed for 20 years before these other funds were opened.
I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?" Then they say "The Medallion fund has been closed to external capital since 1993 ... whatever profit they make, they pay out". So clearly it can't be a ponzie scheme? Still, it seems too good to be true. If financial experts are stumped as well then that also…
I don't think they could keep it up for that long without slipping up at least once. Enron started around the same time and got tripped up in 2001. If it were a one man investment shop, then maybe it leans more towards fraud. But if they obviously employ dozens of quants, and have obvious hardware outlays, it seems less likely. It makes a lot of sense to me that they just win a bit more than they lose, play a lot of…
Earlier quoted context omitted.
I don't think they could keep it up for that long without slipping up at least once. Enron started around the same time and got tripped up in 2001. If it were a one man investment shop, then maybe it leans more towards fraud. But if they obviously employ dozens of quants, and have obvious hardware outlays, it seems less likely. It makes a lot of sense to me that they just win a bit more than they lose, play a lot of…
I think I have the math right here, but let's say you start with > Capital = $100 1 time a day 5 days a week 50 weeks a year, you're going to take your capital and place that many $1 bets with it. Let's say you net +1% on your deployed capital ever day. After 250 rounds, you have $1215 in the bank. Again, correct the math if I'm wrong. But scale that down to 0.57%, which is the win rate I saw, and they're making ~$60…
That's the "..." step in "1 steal underpants, 2 ..., 3 Profit!"
I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?" Then they say "The Medallion fund has been closed to external capital since 1993 ... whatever profit they make, they pay out". So clearly it can't be a ponzie scheme? Still, it seems too good to be true. If financial experts are stumped as well then that also…
Renaissance focused on finding and developing novel mathematics that can be exploited to find an edge, some of which is extremely esoteric and unique, and then massively automating that. Consequently, they can find more new edges before breakfast than some hedge funds find all year. The real effect is that they don't need to milk a dying edge for returns because they are constantly generating new ones, and they can pick the best of the bunch at any point in time. The investment side of the business is mechanical. Their recruiting has reflected their deep interest in novel theoretical approaches to edge discovery.
In a sense, they are a higher order abstraction of a more typical hedge fund.
As an investor, I’m going to discount anything I can’t invest in and just focus on the numbers of the open fund. These closed flagships are a common marketing approach. Like concept cars, they grab attention and help sell the more mundane models that are commercially viable. This article being a good example. Clearly it works in this role and I can understand why they would do this.
As a PM, I’d always prefer to have my own capital in a closed flagship where I can cherry pick the best strategies, charge myself less fees and make use of the latest tech and R&D subsidised by the open funds. My reporting requirements are much less onerous so there is plenty of scope to massage the numbers too.
As a regulator, I’m underfunded and politically motivated to focus on high profile cases where large numbers of everyday public (voters) have been ripped off. I have little time for institutional investors who should know better and so closed funds trading internal money are way down my list.
As a regTech founder, I’ve seen plenty of examples of creative methods to get around regulations. Or they just being blatantly ignored. Compliance are usually colluding and helping coverup. Insider trading is one of the higher risk methods, to get these sort of returns it would be easier to simply get access to the “dumb” order flow from the open funds. Using lots of fancy looking algos etc. to hide simple front running.
Given they are closed and trading their own money we are only going to know what they choose to disclose. Personally, I’d bet on this being legit, given the figures while great, aren’t impossible given the privileged position they have in terms of access, information, tech etc. And the existing distribution of performance for low capacity HFT strategies. People abusing the system would be making even more and keeping quiet about it.
Earlier quoted context omitted.
The "only" problem with your theory is that the "sucker funds" have to lose 100 billion, which won't go unnoticed by the "suckers"
Do they have to lose $100B, or just underperform? People have accepted 2% fees on managed funds despite underperforming an index fund for decades .