https://www.wsj.com/articles/renaissance-says-losses-should-have-been-expected-at-some-point-11611008784 In the letter sent late Friday, the firm said losses of between 20% and 30% in 2020 for its three funds open to outside investors should have been expected at some point during the course of the funds’ histories. The letter partly blamed heightened volatility for the weak performance.
https://www.wsj.com/articles/renais...int-11611008784?mod=searchresults_pos4&page=1 Skip to... Print Edition V Renaissance Says Losses Should Have Been Expected at Some Point Quant hedge fund tells clients that drop of 20% to 30% was partly due to increased volatility Renaissance Technologies CEO Peter Brown in 2014; the firm took the rare step of explaining steep losses in 2020 to clients. PHOTO: ANDREW HARRER/BLOOMBERG NEWS By Jan. 18, 2021 5:26 pm ET SAVE PRINT TEXT Listen to this article 4 minutes 00:00 / 04:22 1x Quant pioneer Renaissance Technologies LLC sent clients an analysis of its performance and a rationalization of recent deep losses, an unusual move for one of Wall Street’s most secretive firms. In the letter sent late Friday, the firm said losses of between 20% and 30% in 2020 for its three funds open to outside investors should have been expected at some point during the course of the funds’ histories. The letter partly blamed heightened volatility for the weak performance. Still, some clients said the letter was short on meaningful explanations. The decision to reach out to investors with a letter follows an awful year for several of Renaissance’s hedge funds, with some clients having expressed unhappiness in recent days. The weak performance of some of the firm’s outside funds has spurred investor withdrawals. Renaissance manages nearly $60 billion firmwide, down from about $75 billion a year ago. “Although recent performance has been terrible and worse than prior performance would have suggested was likely for 2020,” the letter says, “in track records as long as ours, some risk-return ratios every bit as bad as the ones we are now seeing are not shocking.” Last year, investors had to deal with the impact of the pandemic, which included unusual volatility in markets. This volatility affected Renaissance, said the firm, which was founded by James Simons but has been run in recent years by longtime executive Peter Brown. “Obviously, large positive or negative returns are more likely when volatility is high, as that is basically the definition of volatility,” according to the letter, which was viewed by The Wall Street Journal. A spokesman for Renaissance couldn’t be reached for immediate comment. In some ways, Renaissance’s explanations are similar to those other firms have made. Many firms that rely on predictive models, rather than traditional research and judgment, suffered over the past year. These so-called quant firms generally have blamed the market’s unusual volatility or the historic underperformance of value stocks, rather than any mistake they or their models might have made. Their assumption: Markets will revert to normal trading patterns at some point, enabling returns to improve, or the firm’s models will learn to adjust to a new, volatile market. That Renaissance is doing some explaining is more surprising. The firm rarely experiences rough stretches. Its Medallion hedge fund, which is available only to employees and select others, soared 76% in 2020. Its three funds open to outsiders, the Renaissance Institutional Equities Fund, known as RIEF, the Renaissance Institutional Diversified Alpha and the Renaissance Institutional Diversified Global Equities, have generally beaten the market, other than in 2008 and 2009. Options Trading Is More Popular Than Ever Despite the Risks YOU MAY ALSO LIKE UP NEXT 0:00 / 6:38 4:36 Options Trading Is More Popular Than Ever Despite the Risks Traders are buying and selling stock options at a record pace. WSJ explains how call and put contracts work, and why they carry hidden risks for amateur investors. Illustration: Zoe Soriano for The Wall Street Journal At the same time, Renaissance rarely sends letters to investors providing extended commentary about its performance and keeps many of its trading viewpoints closely guarded. It is careful not to share many details of its trading with others, even with its own clients, lest its secret escape. Some quant veterans said that the letter shared few specific details to explain why the funds did so poorly last year. “The losses suggest they consistently loaded up on certain risk factors that kept going against them,” said Andrew Sterge, chief executive of Closed End Trading LLC, based in Wayne, Pa. “Did they intend to load on these factors or was it an accident? The letter doesn’t say.” In its letter, Renaissance likened the poor performance to “a run of five heads anywhere in the next 10 thousand flips” of a coin, calling an excessive focus on the returns of any one year “selection bias.” The firm said the probabilities of such awful one-year performances for the three funds was 1% or lower, but “the probability of seeing at least one year as bad as 2020 within our track records,” given their length, is reasonably high. Even good investments “perform horribly from time to time,” the letter said. Write to Gregory Zuckerman at gregory.zuckerman@wsj.com Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. Investments
I just read the book on Jim Simons, excellent read. What's interesting is this under-performing fund looks to be their longer term one, taking positions for weeks/months. The short term fund (positions held for hours/a day) has been closed to new investment for years, and that fund is the major money earner. So the interesting point is the longer one trades the harder it is for these rocket scientists to make money. That in turn means the computers/algos are decades away from successfully trading the longer term moves, and even then it might not be achievable. So human traders still have a major advantage over technology trading, just not in the short term.