Renaissance Technologies is Jim Simons’ cash cow. RenTech’s quantitative investment strategies made Jim Simons one of the world’s richest men. Simons founded Renaissance Technologies in 1982. Since then, he has grown it one of the world’s largest hedge funds (according to Bloomberg) and has produced such consistently high returns managing the over $25 billion fund that he has been able to charge the one of the highest fees in the industry, and get away with it. Simons stepped down from managing Renaissance Technologies in October 2009, but the strategy he laid down still holds true.
Jim Simons is a theoretical mathematician. As such, his strategy has always been to focus on quantitative data. In other words, he used statistical and mathematical analysis to make decisions about how to invest his fund, applying this information to exploit even the smallest market inefficiencies. As such, Simons has an incredibly expansive portfolio, often managing thousands of positions at once.
While this strategy has historically worked to the benefit of Renaissance Technologies, either the glow seems to be fading or Simons’s smaller positions plays a larger role than his larger positions. Since the end of June, Renaissance Technologies’ new stock picks have underperformed the S&P 500 (SPY), returning a loss of 9% vs. a 8% loss for the SPY over the same period.
Of the stocks Simons is most bullish about, the greatest losses were in Jupiter Networks Inc (JNPR); Renaissance Technologies lost 34% on that position since the end of last quarter. The $35.5 million position is a new position for Renaissance Technologies and popular with other funds. John Burbank’s Passport Capital bought a position worth nearly $40 million last quarter (check out Burbank’s top picks) while Brookside Capital went in with a position worth nearly $300 million (see what Brookside is up to). Renaissance Technologies also lost big on Level 3 Communications Inc (LVLT), losing 33% since the end of June.
There were some successes though. Renaissance Technologies gained 23% on Green Mountain Coffee Roasters (GMCR). Green Mountain is a new position for Renaissance Technologies; they initiated a $48.9 million position last quarter. Popular opinion is rather divided amongst the hedge funds we track. Steve Cohen of SAC Capital Advisors decreased his position in the coffee company by 40% last quarter, bringing his position to $97 million (check out Cohen’s top picks). In contrast, Discovery Capital Management’s Rob Citrone increased his position in the company by 374% last quarter, bringing it to a value over $100 million (see Citrone’s top picks). Given the relative success of Green Mountain since the end of June, it seems Simons and Citrone were right about it.
We like Jim Simons and he certainly has a strong performance record, strong enough that his moves are even emulated by the top hedge fund managers in the industry. However, for the private investor, mirroring Renaissance Technologies successfully will require holding more positions than average, acting quickly to exploit market inefficiencies and finding a way to make profits while affording the transaction costs.