Alpha - September 2007 - (Page 5)

Longs Ambitious Minds J ames Simons, a prizewinning mathematician and former cold war code breaker, is a man of quiet ambition. He is also quite possibly the most talented — and successful — hedge fund manager ever to use leverage and short securities. Simons’ firm, Renaissance Technologies, manages $34 billion from its headquarters set amid 16 wooded acres in East Setauket, New York. The firm’s flagship Medallion fund has delivered net annualized returns averaging about 36 percent since its 1988 inception, using sophisticated computer models developed by Simons and his army of Ph.D.s. Simons, who has a long history of returning money to investors rather than risk hurting performance, closed the now $6 billion Medallion to outside investors in 2005. That same year he launched Renaissance Institutional Equity Fund, or RIEF, a hedge fund targeted to institutional investors that has since grown to more than $26 billion in assets. The 69-year-old Simons, who made an estimated $1.7 billion in 2006 to lead Alpha’s ranking of the bestpaid hedge fund managers, clearly has no ﬁnancial need to work. But this summer — in the midst of the most damaging market for quantitative hedge funds in recent memory — he and his team began quietly marketing a new fund. The strategy, Renaissance Institutional Futures Fund, will invest mainly in exchange-traded futures and options, including energy, commodities, bonds and equities, according to one prospective investor. The fund is intended to be highly liquid — it is not using a lot of leverage but has the potential to be quite volatile, according to its marketing materials — and hopes to deliver three-to-five-year annualized returns of 15 percent after Renaissance takes its 1 percent management fee and a 10 percent performance fee. RIFF, which like its sibling RIEF was designed for pension funds, endowments and other institutional investors, has a capacity of $50 billion. RIEF, which Simons has said could handle as much as $100 billion in assets, was among the many quant funds that stumbled this summer when problems in the subprime mortgage market spilled over into the equity markets, causing irrational price swings in some liquid securities. Through the middle of August, RIEF, which invests exclusively in equities and equity derivatives, was down 8.7 percent, causing Simons to issue a letter to investors addressing performance concerns. Despite the tempestuous markets, Simons forged ahead with his plans for the new fund. His conﬁdence in Renaissance’s investment process is well-placed. RIEF reIllustration by Joshua Gorchov for Alpha & Shorts covered from its midsummer losses and ended up 0.52 percent for August — helping turn Simons’ tough month into yet another selling point for potential new investors. — Imogen Rose-Smith Renaissance Technologies’ James Simons: Expanding in the midst of market chaos. Fueling Demand R apid economic growth has made China the world’s second-largest consumer of fuel — behind only the U.S. — a trend that has not gone unnoticed by hedge funds. And with demand only expected to increase, fund managers have been aggressively taking positions in China’s energy market. SEPTEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 5

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

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