I have been reading The Man who Solved the Market: How Jim Simons Launched the Quant Revolution, written by Gregory Zuckerman of the Wall Street Journal.
The book looks at the journey Jim Simons commenced in 1978, to create the powerhouse that is now Renaissance Technologies, one of the most formidable hedge funds in history.
Jim Simons is an award-winning US mathematician and former cold war code-breaker, who changed the way of investing for generations to come and now dedicates his time to philanthropy through the Simons Foundation.
Mr Simons and his wife, Marilyn Hawrys Simons, co-founded the Simons Foundation in 1994.
The charitable organisation was set up to support projects related to education and health, as well as scientific research.
Mr Simons is also keen on encouraging the mathematical knowledge of young people in the US.
But back to the book...
The book not only offers an insight into the early days of Renaissance Technologies, but also a glimpse into the life of Mr Simons.
What really struck me about the book was the insight offered into a notoriously secretive industry and company. From the early struggles to the continued success of a company that holds, in the book’s words, the best track record on Wall Street, Renaissance didn’t just adapt with the times: it always sought to be ahead of the times.
This is supported by the quoted 39.1 per cent annualised net returns of the Medallion fund, which is Renaissance’s flagship fund, now closed and only available for employee investment, from 1988 to 2018.
Being an early proponent of systematic trading through the use of quantitative modelling, based on probability theorem and statistical analysis, was no mean feat in the 1980s, especially given the data was so difficult to come by.
This is all the more remarkable given how computers took up the majority of a room and the data sets available were daily, at best (unlike nowadays, with intraday data being down to the second) and would have been even longer if not for independent data collection by Sandor Strauss, a Renaissance employee.
A key area of Renaissance’s success lies with the belief Jim Simons held from day one — that the emotion of investing leads to mediocre returns for many investors. By implementing a systematic strategy, Renaissance believed they could remove the emotion attached to investing.
Mr Simons went even further and adopted a policy of not hiring anyone who had a business background (particularly Wall Street), in case this brought any emotion or prior beliefs into Renaissance’s strategies. The employees have always consisted of mathematicians and physicists — many of whom have PhDs.
This is again contrary to many great companies/hedge funds, who seek employees with a financial background.
I started reading the book after receiving it for Christmas and have used quiet weekends during lockdown to finish it.
The resounding thoughts I have had throughout are how powerful the quant revolution has become and the fundamental role Jim Simons and Renaissance Technologies have played in this — even while keeping their cards close to their chest.
Nick Astley is an investment manager for Progeny
