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Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#161

Post by texasbigdata »

scottious wrote: post #2

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…

No one is stumped, they're not making any external claim and they are not raising capital. This type of drive by analysis is the equivalent of "will Brad and jennifer get back together" at the grocery store check out line.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#162

Post by texasbigdata »

huffmsa wrote: post #51
huffmsa wrote: post #34

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…

The book has more detail. They raised capital in the beginning.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#163

Post by texasbigdata »

codingslave wrote: post #136
sweeneyrod wrote: post #105

Earlier quoted context omitted.

No, it's the exact opposite. The limit of how much money you can put through a given strategy mean there is an antieconomy of scale that encourages lots of small firms.

this is the complete opposite of true. I work in the industry, too busy to write up a response. But basically, the top five hedge funds are making most of the returns and are attracting most of the capital. the industry is consolidating

Dollar weighted? Real question. Take Bridgewater and a 5% return and that's billions in profit which likely represents a meaningful portion of the total profits made. Is that what you mean?

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#164

Post by alasdair_ »

duncancarroll wrote: post #131
jandrewrogers wrote: post #120

Earlier quoted context omitted.

Many years ago, Jim Simons took an interest in my theoretical work on discrete topology (still unpublished) in the context of this fund. Among other things, this research provided a powerful mechanism for finding relationships in data that are effectively intractable to discover by more conventional means. Many of the mathematicians associated with Renaissance at the time had diverse and impressive theoretical backgr…

I can understand that there are a limited number of people who can understand and apply the math necessary, but not that it could remain proprietary for 30 years. Usually if a company has secret sauce, someone will leave and spin off on their own. Even Google can't retain everyone. So unless I'm missing something, any explanation has to account for why this hasn't occurred here.

Very tight NDAs (that they actually litigate) coupled with enforceable non-competes ("garden leave" where they pay your salary for, say, a year as part of the deal before you can leave for a competitor) is part of it.

Really high comp is another.

Perhaps a bigger deal is the fact that they actively return money over the roughly $10BN fund value, implying that the strategy doesn't work past that point. A competitor would then be stuck in a zero-sum game battling for a slice of a fixed pie rather than being able to grow the market.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#165

Post by james-imitative »

jjoonathan wrote: post #39

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…

> Such an accusation would need to untangle the coordination behavior of the money wormhole to make its case, and those inner workings could be made very convoluted indeed, hidden deep inside complementary pseudorandom behavior.

In such a case, it may be (fscking) helpful for the courts of law to go after the people who _didn't clearly break_ the law in the first place. That way, the shady Machiavellians get caught first and the chumps can be mopped up afterwards. Deep as anythink.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#166

Post by james-imitative »

dankohn1 wrote: post #138
bitcurious wrote: post #73

Earlier quoted context omitted.

This complements another wild theory I've heard, which is that the Medallion Fund exists to launder money from corrupt states. Say you have a $200B state pension fund - you invest a portion in the loser fund, earn a portion back as personal wealth on the winner side.

This is deeply insightful.

Yes. I would endorse this comment.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#167

Post by james-imitative »

Mvandenbergh wrote: post #99
SamBam wrote: post #63

Earlier quoted context omitted.

I'm not sure I understand your suggestion. 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…

People with illegally earned money put their money into a series of short lived sucker funds which exist to funnel money invisibly into the winner fund where it reappears as legitimate investment returns. The dumb version of this with very simple mirror trades which were easy to track has been seen "in the wild" in Russia as carried out by people at DB. BTW I don't really buy this theory but that's how it would work.

This has been happening in Peru, Uganda, Bolivia and Grenada.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#168

Post by s1artibartfast »

SamBam wrote: post #155
ThrustVectoring wrote: post #102

Earlier quoted context omitted.

It's simpler than you think. You take a pair of offsetting trades, and later you re-write history to book the losing trade on Sucker and the winning trade on Winner.

No, I got that, as I stated. The issue is that half your trades are losing money, so where is that money coming from.

As I understand the argument, the money is coming from investors in the looser fund, which usually still makes a modest profit, and has great branding from also managing the winner fund.

If RenTec medallion fund is capped at 10B and their other funds are 100B, every 1% profit they transfer is 10% performance improvement in medallion. As long as the large fund is still profitable, it is basically a management fee.

Alternatively, the looser fund could be another external fund, operating in cahoots using a complementary strategy to launder monday.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#169

Post by james-imitative »

opportune wrote: post #158
elliekelly wrote: post #125

Earlier quoted context omitted.

People who are looking to launder significant amounts of money would gladly sign up to be the "sucker" in this hypothetical scenario.

This would be embezzlement, not laundering right? Because you can’t exactly put $20B of dirty money into a sucker fund but you can easily do it with a fund that you control but don’t own (eg a pension fund)

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