Can I Invest In The Medallion Fund?

Famed investor Jim Simons is arguably the greatest hedge fund manager in all of history. His investment vehicle, Renaissance Technologies, operates several financial products, among which is the legendary Medallion Fund.

Established in 1988, the Medallion Fund – originally known as the Limroy Colombian fund – is considered to be the most successful investment portfolio ever, and certainly Renaissance Technologies’ most profitable to date.

Jim Simons recently stepped down from his chairmanship of Renaissance Technologies, but interest in his investing methods and strategies hasn’t gone away. Here, we take a closer look at the Jim Simons’ headline Medallion Fund and examine some of the reasons behind its phenomenal success.

Medallion Fund Investment Approach

After a successful career as a National Security Agency code-breaker and an academic mathematician, Jim Simons decided it was time to turn his attention to commodities investing.

His background in mathematics – wherein he won the prestigious Oswald Veblen Prize in Geometry – informed his trading philosophy right from the start, and he has since been credited with being a major innovator in the practice of what is now known as quantitative trading.

What is Quantitative Trading?

Quantitative trading, or quantitative analysis, is a form of investment management that uses statistics and mathematics to inform its decision-making process.

Traders using this approach are often referred to as “quants”, and they will typically specialize in one or just a few kinds of quantitative analysis, including algorithmic trading, derivative pricing, or risk management.

Jim Simons’ investment strategy entails analyzing large amounts of data to identify “signals” in the market, which then enable his team to gain a slight edge in the market which allows them to arbitrage the market and make other profitable trades.

Unlike traditional investment methods, the Medallion Fund doesn’t rely on the personal judgement on its fund managers to execute trading decisions; rather, the fund employs data scientists and other experts with non-financial backgrounds to build sophisticated computer algorithms that crunch the numbers and are often able to initiate trades independently.

In theory, outsiders know little about the precise mechanisms of Jim Simons’ trading methodology. His strategy is a “black-box” system, and its has sometimes been claimed that even the coders behind an algorithmic trading program aren’t always sure of the exact logic that a computer uses to conduct its trades.

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Medallion Fund Track Record

In addition to the Medallion Fund, Renaissance Technologies also runs three other funds: the Renaissance Institutional Diversified Global Equity Fund; the Renaissance Institutional Diversified Alpha; and the Renaissance Institutional Equities Fund.

Of these four total funds, the Medallion Fund is easily the most successful. Since its inception, Medallion has earned over $100 billion in profits for its investors, representing around a 39% average net return.

To put this in context, a dollar invested with the Medallion Fund thirty years ago would have beaten the returns of the S&P Index by 2,000 times – and the profits of Wall Street’s most famous investor, Warren Buffett, by a factor of 200. 

But how is Medallion doing today? Remarkably, the fund had an excellent 2020, despite the COVID headwinds. The fund grew 76% last year, and continued its momentum going into 2021, gaining 9.7% in the first quarter. Again, the fund is still outperforming the S&P, which only gained 6.2% so far this year.

How Did Jim Simons Get So Rich?

Jim Simons is a very rich man. His current net worth is estimated to be around $24.6 billion – and, according to Forbes’ latest billionaires list, Simons is the 68th richest person in the world, and the 4th wealthiest in the Finance & Investments industry.

Having come from a relatively modest background, Simons achieved his wealth through the success of his trading efforts with his Monemetrics – and later Renaissance Technologies – hedge fund.

Can I Invest In The Medallion Fund?

Unfortunately for those seeking to capitalize on Medallion’s success, the sad news is that the fund is only open to current and former employees of Renaissance Technologies. The hedge fund became an insider-only portfolio in 1993, and eventually bought out its last remaining investors in 2005.

However, Renaissance’s other three funds are available to outside investors. The biggest of these, the Renaissance Institutional Equities Fund, isn’t doing as well as its more lucrative private counterpart; the fund lost 20% of its value in 2020, and was down a further 4.36% at the beginning of the year. Since then it has recovered somewhat, and is now up a full 4% for the year so far.

The outlook for the rest of Renaissance Technologies’ public funds isn’t so rosy, though. Investors decided to retreat from the three funds in December, taking out $1.85 billion, and continued to exit in 2021, removing a further $3.55 billion. Conversely, Medallion’s prospects are on the up: the fund is reported to be expanding its total capacity by 10%, increasing its current assets under management of $34.8 billion.

Final Thoughts

Because we’ll never know the precise mechanism behind Jim Simons’ investing success, it isn’t an option for us to copy his trading style exactly. But that doesn’t mean we can’t emulate the methods favored by quantitative analysts, and include some exposure to these investments through quant-related ETFs and other portfolios using algorithmic trading approaches.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.