According to investor documents seen by Bloomberg, Renaissance, the world's largest, oldest and most complex hedge fund, has reached about $14.6 billion in redemptions for its three open-end hedge funds in the past 14 months.
As of the end of 2019, Renaissance Fund had $75 billion in assets under management. At the start of the 2020 pandemic, the Renaissance Fund's algorithm went awry, and by the end of the year, three of its funds had lost between 19 and 31 percent, triggering a massive outflow of funds. Since then, the fund's earnings have rebounded too slowly, and the outflow of funds continues.
Renaissance's β model helped determine the portfolio risk of its funds. The company said in a filing at the time that the model had gone awry in March 2020 and had "not played its intended role" in the market's then-large volatility. The funds were not fully hedged when stocks fell sharply that month, and later overused hedging tools during the April-June market rally.
The pandemic marked a change in the fate of the Renaissance, a long-respected pioneer of quantitative investing founded in 1982 by codebreaker Jim Simons. Over the years, many investors have been drawn to the company, which is known for its legendary "medallion" fund, which is currently only open to current and former employees of the Renaissance. But for Renaissance clients, the "medallion" fund's performance in 2020 threw a handful of salt on their wounds as they saw the fund soar 76 percent, making Simmons one of the highest-paid people in the hedge fund world.
Renaissance has long told investors that its three open-end hedge funds are traded differently from "medallion" funds, but former Renaissance executive Nick Patterson said, "A lot of investors didn't believe it at first." It wasn't until after the very bad results in 2020 that a lot of people realized, 'Oh, this is true.'" ”
While all three open-end hedge funds achieved double-digit returns in 2021, most of those returns came in the last month of the year. None of these funds surpassed the 27 percent increase in the S&P 500 last year.
The problem with quantitative funds is that because algorithms rely on historical data to decide what and how to trade, they can struggle to navigate uncharted territory.
The pandemic had a worse impact on the Renaissance than the subprime mortgage crisis of 2007. The fund fell 16 percent in 2008, the second worst year after 2020.
After the losses in the early days of the pandemic, the company said it was "actively exploring some ideas on how to improve and control β model."
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