Renaissance Technologies Closing Futures Fund

October 19th, 2015, 02:46 AM

Renaissance Technologies is like an inspiration for me. The company's Medallion Fund performance is nothing short of legendary. They are secretive that the only thing I know about them is that they hire the best quants. But even them with their smart algorithm cannot tackle the futures market.

Renaissance Technologies winds down $1bn investment fund
https://www.ft.com/content/109842b8-71f4-11e5-9b9e-690fdae72044
Renaissance Technologies to shut small hedge fund: sources | Reuters

The Reuters article then discloses the return of RIFF sister funds this year.

Equity fund return: +11.2%
Equity and Futures (diversified) return: +11.48%
Futures return: -1.75% (the one being closed)

Based on this return distribution, can I conclude any or all of the following

1. Renaissance has its edge but only in equity
2. futures market is plain toxic, even for the smartest people

Here is what I don't understand. Market-makers are still making money, as implied by Virtu's TV interview. Does that mean Renaissance isn't involved in any high frequency trading or market-making activities? But they must play some role in liquidity provision in the equity market, given the sheer size of their equity volume. Then how come their magic isn't rubbing off in the futures market. What makes the futures market so toxic that Renaissance couldn't turn profit on a $1 billion fund with all its mightiness.

October 19th, 2015, 02:57 AM

I've seen RIFF's marketing materials and I know several investors who have seen Medallion's marketing materials.

Restating what's already known within public domain, RIFF and Medallion are running different strategies.

I didn't read much into this piece of news, but my guess is that the reason for closing RIFF is that the 20% or so capital in it that is coming from outsiders is not sufficient to compensate for the costs.

Something like (2% fee on $200M - admin costs) + 20% fee on returns < marginal increase in internal returns with $200M less invested into the strategy? This is a very naive marginal cost analysis (ignores taxes, variance etc.) - but for sake of simplified explanation, if admin costs on investor's $200M are $1M and returns are 10%, then if your return on your $800M portion of the $1B can increase from $80M to $87M if $200M less was invested in the strategy, then you might as well remove your investors.

October 19th, 2015, 03:00 AM

This is interesting and probably an outcome of lackluster performance of the CTA industry in the last 5 years and decreased futures liquidity. There is more into it and it probably has to do with Jim Simons' belief that trend following is dead, which he expressed in a recent interview. Here is an article from a top-rated quant blog about this problem. This is interesting development and probably others will follow.

Renaissance Technologies Closing Futures Fund

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Renaissance Technologies Closing Futures Fund