(With a delay so as not to get shot. Previously.)
- The first time I gave my real name and company. Oh, but they're wise to my game, and after 5 minutes, an operator gets on and informs me that "Ms. Levin, the administrators have requested that you be disconnected from this call."
- I can tell this is a job for an alter ego, Elizabeth Spring, and so I call back having been reincarnated thusly. I'm listening and taking notes for the famous British banking concern...BCSH.
- Dr. Jim Simons and Dr. David Lippy, senior researcher on RIEF in the hizzous.
- [I love this man] Simons: I'm going to start on background. And when I say "background," I mean background. I'm going back thirty years.
- In the 1980s we started to develop some computer driven models.
- In 1988 we formed the Medallion fund.
- By 2002 Medallion had reached a very high level. Funds were returned to outside investors. During the following three years we remained at that size, leaving the fund at about 98 percent employee owned.
- We have a capacity issue as we have such short holding periods.
- We realized we too as employees would get capped out, and in 2003 created a new vehicle, a fund with no practical constraint that could manage both employees and outside investors, which would have a holding period of not simply days and weeks but for quarters and years. It needed to be able to manage 50 to 100 billion, have beta but not exceed 40 percent, have two-thirds the volatility of the S&P and meaningfully outperform it, with no particular tracking expectations.
- And so we created RIEF. And it was good.
- This was just the sort of fund I myself wanted to invest in, and I did. My family group is currently the fund's largest investor.
- To summarize comparisons with Medallion, Medallion is highly levered, RIEF is not; Medallion is very fast trading, RIEF is very slow trading; they're barely correlated.
- March 1 through yesterday, we're down 32.9 percent (relative to the S&P 500)
- That's a heckuva big move, and it's worth asking how it happened.
Lippy takes the mic
- High volatility stocks have outperformed low volatility stocks to an extreme
- We are not indignant about making short term predictions
- What has been happening looks historically aberrant
- All we did was give up last year's gains....so don't worry. (Summary of entire call: What's your fucking problem? We were up 20% last year.)
- This kind of thing [junk rally] can't go on indefinitely (otherwise, RUN)
Questions
Simons: It's time for questions from the audience. Whoever's controlling this, arrange for that miracle.
Q: Do you adjust for overfitting?
A: Yes. Dumbass.
Q: If you were so short low quality stocks, why didn't you make a killing in the Feb-March downturn? Don't you look for oversold indicators?
A: Oversold, overbought is meaningless from a practical perspective. [Coughs...God I need a cigarette]. I wish I had an answer. It's more easily wondered than answered.
Q: Missed it
A: Simons (for real) Says: This period has been totally bananas.
Q: Can you comment on redemption activity in May and June?
A: May was small, we don't have numbers for June yet (nothing has come in). I wouldn't be surprised if there were redemptions, people reacting negatively to these bad months and some such.
Q: Does the junk rally need to end for the fund to start improving?
A: Our predictive signals tend to favor non-junk. If our shorts continue to out perform our longs we will not do well (laughs).
Q: We have this period of underperformance...have you ever experienced the same magnitude of overperformance?
A: If you normalize by volatility, yes. These things tend to be pretty symmetric.
Q: In terms of people taking their money out...would you consider closing the fund?
A: We would only close RIEF if I decided to pull my money out because the damn thing wasn't working, and we found it to be a nuisance. But we're nowhere near that. One of my partners sitting next to me wants me to tell you that.
No more questions.
Simons: Thanks for coming, and you can be sure we're doing our damndest to make your investments worthwhile.
Posted by guest , May 13, 2009 2:10PM
Did anyone ask how Medallion is doing ytd?
Posted by guest , May 13, 2009 2:15PM
@1 - for leverage X, Medallion should be up about -X * RIEF.
Posted by BSD , May 13, 2009 2:19PM
@2 so you're calling Simons a flat-out liar?
Posted by guest , May 13, 2009 2:20PM
@2-- not necessarily. in an hypothetical example, medallion could be acting as a "specialist" to RIEF thereby getting in and out of the low volatility "quality" that nests in RIEF
Posted by guest , May 13, 2009 2:22PM
If the bit about "normalize by volatility" is truly a quote, then my fits of laughter shall continue. Only a few years ago Simons bragged about having a $100B capacity. He neglected to mention that it was a capacity for crappy trading, in which case capacity is actually much higher....
Posted by Bess Levin , May 13, 2009 2:24PM
@5- "If the bit about "normalize by volatility" is truly a quote"
it is.
Posted by guest , May 13, 2009 2:26PM
Maybe performance were better if Mercer had not fucked up on model train detail:
http://www.nydailynews.com/news/2009/03/31/2009-03-31_hedge_fund_hotshot_robert_mercer_files_l-2.html
Posted by guest , May 13, 2009 2:29PM
I pounded my secretary in her ass during this call.
Posted by guest , May 13, 2009 2:29PM
Considering the leverage was 5 times.. that makes it YTD 88%
Posted by guest , May 13, 2009 2:30PM
I'm Ed Liddy, what's a CDS?
Posted by guest , May 13, 2009 2:40PM
It's at times like this that I miss the Man Show and Vanessa Kay. Sigh.
Posted by guest , May 13, 2009 2:43PM
Elizabeth Spring... Sounds like someone likes the shopping/dining in NOLITA. Got to hand it to that Bess, she has good taste.
Posted by guest , May 13, 2009 2:45PM
- What has been happening looks historically aberrant
- This kind of thing can't go on indefinitely
I don't at all understand how quant shops can watch their models repeatedly get shat on by the market, evidenced by today and in conference calls for other funds, and still think that the markets will correct to their models.
Posted by guest , May 13, 2009 2:45PM
rocket scientist @12- DB's office are at Mott and Houston.
Posted by guest , May 13, 2009 2:47PM
14 Thanks for that. Until you wrote, I didn't realize that people only shop / dine on the same corner as their office.
Posted by guest , May 13, 2009 2:49PM
Yeah, thanks for clearing that up, 14.
Posted by guest , May 13, 2009 2:50PM
I'm glad that old Jim finally fessed up that medallion is not ALL employee money. If I were him I'd redeem medallion investors who (if the the numbers are real which is nearly impossible)should be fabulosly wealthy, and let the poor RIEF suckers into medallion fund to compensate them. HAS ANYONE EVER AUDITED MEDALLION??!!
Posted by guest , May 13, 2009 2:52PM
I would love to be the sausage in a Elizabeth Spring, Bess Levin sandwich.
Posted by guest , May 13, 2009 2:52PM
@17 why would anyone audit a firm that produces consistent positive returns?
Posted by guest , May 13, 2009 2:53PM
14 Got me there. Mott/Houston is two blocks and one avenue away from Elizabeth/Spring. Can't imagine anyone walking that kind of distance.
Posted by guest , May 13, 2009 2:54PM
is everyone's desk quiet today?
Posted by guest , May 13, 2009 2:55PM
Hello Elizabeth Spring, I love you and I want you to have my babies; all 27 of them.
- Snake Plissken
Posted by guest , May 13, 2009 2:58PM
"Mrs. Elizabeth Levin Plissken Spring Snake, the administrators have requested that you be disconnected from this call."
Love you, bye bye!
Posted by guest , May 13, 2009 2:59PM
i have that same problem, with getting asked to leave after stating my name and company.
Joe Francis
Posted by guest , May 13, 2009 3:01PM
Bill Seidman died?
Posted by guest , May 13, 2009 3:02PM
@21
terribly. Been posting comments all day.
Posted by guest , May 13, 2009 3:04PM
@21- very.
-from inside rentec
Posted by guest , May 13, 2009 3:05PM
Hey...I thought when I invested in RIEF and RIFF I was going to get these returns:
1988 30%
1989 -4%
1990 56%
1991 39%
1992 34%
1993 39%
1994 71%
1995 39%
1996 28%
1997 31%
1998 31%
1999 30%
2000 99%
2001 34%
2002 26%
2003 22%
2004 25%
2005 30%
2006 44%
2007 79%
2008 80%
Posted by guest , May 13, 2009 3:20PM
@28
You have a 401k right? I do, mine is with Fidelity. I have holdings in several different funds. I don't expect them all to preform the same because they are all Fidelity funds.
Why would you expect investments in RIEF and RIFF to preform the same as Medallion when they are clearly different strategies?
Posted by merkin capital partners , May 13, 2009 3:26PM
I am Bill Seidman...sayonara bitches.
Posted by guest , May 13, 2009 3:27PM
because as it says in Fairfield Greenwich Marketing Materials (which was a feeder for RIEF as it was for Madoff) RIEF...is based on the same technology developed by Renaissance Technologies corp, for their Medallion Fund.
Posted by guest , May 13, 2009 3:29PM
@29: Because it was marketed (esp. to former Medallion investors) as similar, but with less volatility, so perhaps "somewhat" lower ROR. Not, completely absolutely 1000 bps opposite. basically, like we were sooooo lucky that we were able to stay with Simons, and that was the only way.
Posted by guest , May 13, 2009 3:43PM
@22 Snake Pliskan, i heard u were dead
Posted by guest , May 13, 2009 3:48PM
@31
Same technology? WTF does that mean? They both trade on computers? FFG is awful, and the amount of investors who did their own shitty DD is laughable,
Posted by guest , May 13, 2009 4:03PM
@33
No, that's TGFD. The turds running around DB claiming to be TGFD are impostors.
l8r
- Snake & Bess
Posted by guest , May 13, 2009 4:09PM
@34 I'm pretty sure that even if you act as a shill for jim he's not going to give you a reach-around
Posted by guest , May 13, 2009 4:11PM
@34 I'm pretty sure that even if you act as a shill for jim he's not going to give you a reach-around
Posted by guest , May 13, 2009 4:28PM
@36/37
I'm pretty sure that even if you post your moronic ramblings twice they look even stupider.
Posted by guest , May 13, 2009 4:41PM
"March 1 through yesterday, we're down 32.9 percent (relative to the S&P 500)"
why the subterfuge? they are the rocket scientists, why not add jan1-feb 28's performance in there as well instead of making us do the work?
http://dealbreaker.com/2009/03/dear-investor-4.php
Posted by guest , May 13, 2009 4:43PM
@39- they're focusing on march/april because it was more of a nuclear holocaust.
Posted by guest , May 13, 2009 6:39PM
[Cough-Cough] "Lippy take this mic and tell everyone why you screwed this thing up while I go over to 17 and print some medallion statements"
Posted by guest , May 13, 2009 8:26PM
This period is bananas, B-a-n-a-n-a-s.
Posted by guest , May 13, 2009 9:31PM
#39-Because they beat the S&P by over 10% in Jan and Feb. Choosing the period that makes them look worst doesn't strike me as subterfuge.
Posted by guest , May 13, 2009 9:37PM
@43- exactly.
Posted by guest , May 13, 2009 10:48PM
@5- Am I missing something? Shouldn't you normalize by some measure of volatility if you're trying to measure statistical significance (like a t-score), see if something is an outlier, etc? I assumed that's what they were talking about when they mentioned normalizing by volatility.
Posted by guest , May 13, 2009 11:10PM
@45- they did. 5 is a fucking idiot.
Posted by guest , May 13, 2009 11:19PM
*It was interesting to see how Jim reacted to the redemption question by treating that woman like she is an idiot...cmon jim you're better than that
*another interesting question was about the clawback question (before the last question) by a disgruntled investor. I missed his reasoning somehow
Posted by guest , May 13, 2009 11:29PM
@47- the one at the end? re may/june numbers? I think he was legitimately confused about why they would know June redemption numbers now. It took him like 3 tries to get it.
Posted by guest , May 13, 2009 11:35PM
Medallion does not seem to be valuation quant. Medallion is more likely a tactical trading algo. If you are looking for other valuation quant funds look no further than Barclay's BGI, LSV Funds at SEIC, Dimensional Funds - DFA and of course AQR. Should this continue, they will all be lying in a ditch together. The best part is despite the phenomenal intellects at these funds they have made a mistake as simple as buying into the Miller & Modigliani (M&M) Theorem where valuation is independent of the method of financing i.e. debt is the same as equity. If they actually took the time to stop and think they would realize that when people are no longer afraid that these poorly structured companies (WMG, NC, GPI and TEN for ex.) are going out of business in a few weeks, the equity will trade as if it were a call on all potential earnings going forward. Couple that will a retarded amount of correlation in their portfolios and it's just a matter of time. What we may have in the future is a prisoner's dilemma where the first one to get out will be the only survivor. Simons is too casual considering the inertia that this could develop. If I were still in this trade, I would be begging to take it off. To loose only 35% is a gift. Remember Aug 8th/9th of 2007? Think of what would happen if just one big fund is forced to unwind this?
Posted by guest , May 14, 2009 1:36AM
@49 do you think they could have been unwinding yday/today? like his family investment lightening up a bit?
Posted by guest , May 14, 2009 2:52AM
@45/46 Maybe I'm missing something, but I thought the question was pretty straightfwd, and the answer a bit evasive. Shouldn't he be answering whether they have ever been up 32.9% relative to SPX in a 2.5 month period? However, I think he's saying, to paraphrase: we were once up 3.29% when markets were 1/10 as volatile as 2009. That's a lame freakin answer!
And if it were really all employee money, there would be no reason to have a call. The whole thing smells a bit fishy to me.
"Q: We have this period of underperformance...have you ever experienced the same magnitude of overperformance?
A: If you normalize by volatility, yes. These things tend to be pretty symmetric."
Posted by guest , May 14, 2009 3:01AM
Quant funds are getting hit with essentially the same phenomena as the problem is systematically built into their portfolio construction processes. This is just an aberration which can be safely waited out. They ignoring capital structure theory and the option like nature of equity. This is at the core of their massive underperformance. See: http://sigmarising.com/portfolio-management/the-junk-rally-and-quant-hedge-fund-underperformance-a-lesson-in-asymmetric-risk/
Posted by guest , May 14, 2009 3:02AM
Quant funds are getting hit with essentially the same phenomena as the problem is systematically built into their portfolio construction processes. This is not just an aberration that can be safely waited out. They ignoring capital structure theory and the option like nature of equity. This is at the core of their massive underperformance. See: http://sigmarising.com/portfolio-management/the-junk-rally-and-quant-hedge-fund-underperformance-a-lesson-in-asymmetric-risk/
Posted by guest , May 14, 2009 5:25AM
Factor arb returns are driven by the supply and demand for a bunch of small illiquid stocks that come at the top and bottom of a cherry-picking list. The marginal demand is generally from factor arb hedge funds themselves.
Since the August 2007 Arbageddon, factor arb hedge funds have generally done poorly as investors have disinvested from hedge funds generally, and newly-scary factor arb funds in particular. Their selling causes underperformance which causes selling...
Factor arb may well work over the long term, but because the strategy is available to anyone prepared to go to the bother of getting a couple of copies of the JoF out of a library, it needs to be volatile to cap the assets chasing the strategy.
Welcome to our world Jim...
Posted by guest , May 14, 2009 6:00AM
And medallion is immune to all of this because it is high frequency? there are only so many stocks and only so many time frames. something smells really fishy
Posted by guest , May 14, 2009 6:22AM
@28 Those can't be the numbers, can they? WTF?
Posted by guest , May 14, 2009 8:38AM
@51
Medallion is the fund that is all employee money. The call was about RIEF.
Posted by guest , May 14, 2009 8:59AM
@55 Medallion is a volatility pumping strategy, relying primarily on short-term mean reversion; RIEF is a fundamental factor-based model, though not one built in a strictly beta-controlled way as most factor quants do.
Posted by guest , May 14, 2009 9:06AM
@58 Since you are so well informed, please tell us when the last PERFORMANCE audit was done on medallion and by whom. Hopefully is was done not some schlock one man auditing firm in a strip mall. Medallion is not all employee money.
Posted by guest , May 14, 2009 9:16AM
@59 If you're not invested in Medallion, which it seems you're not, then why would it matter to you whether Medallion has been audited or not? It's a matter of concern only to the people who are invested in it, the vast majority of whom are certainly Ren's employees.
Posted by guest , May 14, 2009 9:16AM
@ 58 last time i checked there dozens of shops doing short term mean reversion that don't have remotely the returns listed in 28 above
Posted by guest , May 14, 2009 9:16AM
@59 If you're not invested in Medallion, which it seems you're not, then why would it matter to you whether Medallion has been audited or not? It's a matter of concern only to the people who are invested in it, the vast majority of whom are certainly Ren's employees.
Posted by guest , May 14, 2009 9:21AM
@60/62 The lady doth protest too much, methinks.
Posted by guest , May 14, 2009 9:31AM
@63 I'm not claiming to know this first hand, but then by all means, follow the evidence yourself and tell me what you think:
Here's a link to a guy at Berkeley who studied Information Theory with the heavyweights of the field and who developed the initial version of Medallion's quant strategy:
http://math.berkeley.edu/~berlek/fineng.html
This is similar to ideas discussed by Cover:
http://news-service.stanford.edu/news/2000/april12/universal-412.html
Or Fernholz's "Stochastic Portfolio Theory:, and other variants. Clearly, if this is what Medallion's using, then they have done well with it.
Posted by guest , May 14, 2009 9:31AM
@58 - This reminds me of LTCM. Leverage plus mean reversion = explosion.
The fact remains that the supposedly employee owned Medallion outperformed the client owned REIF by 6000 bps last year which seems very ackward to me.
@ 17 - Completely agree.
Posted by guest , May 14, 2009 9:35AM
@62 In a post-madoff existence, it seems strange that you would not spend even 1 to 2 million usd to audit the whole 20 years of medallion (if it has not been done). If there is nothing to hide it would be a smart business decision as fees just from rief alone are probably 600,000 per day. It would stop speculation that seems to be out there.
Posted by guest , May 14, 2009 9:42AM
I find Jim Simons strangely attractive...
The Gal From Delaware
Posted by guest , May 14, 2009 9:44AM
@66
What possibly makes you think that there were no audits? Just posing that question shows you have no idea what you are talking about.
Posted by guest , May 14, 2009 9:48AM
@68 Please enlighten us. Who did the audits?
Posted by guest , May 14, 2009 9:54AM
@66
Surely you are trying to imply that there have been no audits, so therefore the returns listed by poster #28 are all fictional and Medallion is a big ponzi scheme. So riddle me this jackass. The outside investors who had their money in Medallion up until 2005 or whenever most of them were forced out. They had gotten statements showing their account going up by the %'s in post #28. So they had to redeem their money and hey, look at that, the money they were being told they were earning was there! Don't you think you would have heard something if it wasn't. So who was taking the hit if it is a ponzi? Certainly not the employee investors, because they probably would have gotten a little pissed off if all of a sudden their investments were chopped to pay out the outsiders.
Posted by guest , May 14, 2009 9:55AM
@51- What you're missing is what isn't posted in the blog. According to someone who was actually on the call, their full answer was more like "Probably not but we only produced stats on relative simulated drawdowns for this call so we can't be sure. But if you normalize by volatility, then we probably have."
Posted by guest , May 14, 2009 10:02AM
@ 66 - Ponzis are one thing, too good to be true returns are another.
LTCM returned a huge amount of clients money before being liquidated. I guess most of us are just puzzled by incredibly outsized returns, not only comparing Medallion against the market and other quant funds but also against the REIF fund.
Posted by guest , May 14, 2009 10:03AM
@70 - I think you're wasting your time trying to reason with these morons. Clearly in these times, people's envious hatred knows no bounds.
Posted by guest , May 14, 2009 10:06AM
@ 66 - LTCM returned a huge amount of clients money before being liquidated. Besides you really cant tell if they didnt return more money to clients, thats a total possibility since they chose when to close the fund for outside investors. I guess most of us are just puzzled by incredibly outsized returns, not only comparing Medallion against the market and other quant funds but also against the REIF fund.
Posted by guest , May 14, 2009 10:07AM
@72 Read the links I posted above to the links on volatility pumping, like Berlekamps, and then go back yourself and look at Ren's statements about their RIEF strategy, where Simons explicitly says that RIEF is based on fundamental equity factors. RIEF is was built from their throwaway research; it's just a braindead equity factor model, and not even one constructed that well from the looks of its sub-unit beta.
Posted by guest , May 14, 2009 10:07AM
@70 It seems that you did not answer the @69 question...But anyway...Bernie Madoff gave back all of Avellino and Bienes money in 1992 and to this day, no one knows how he did it. Maybe the employees think they are rich and are holding worthless pieces of paper. Maybe when Simons says above that it "98% employee owned" the 2% lets him tell many people they are the only one in the fund. Maybe its not a ponzi scheme and its something else. Maybe its totally legit...By the way who was the auditor?
Posted by guest , May 14, 2009 10:34AM
http://www.nystax.gov/pdf/advisory_opinions/corporation/a08_6c.pdf
Posted by guest , May 14, 2009 10:50AM
@77 Random tax doc. Interesting....not!
Posted by guest , May 14, 2009 10:53AM
If you could read, you would notice the name of another firm in the doc.
Posted by guest , May 14, 2009 10:58AM
@78-- another conspiracy for you to tackle-- BDO Seidman. Who just died before the conference call?!?! Get yer cub reporter hat ready....
Posted by guest , May 14, 2009 11:17AM
NY Times
The lawsuit by New York Law School, filed in federal court in Manhattan last week, names J. Ezra Merkin, the money manager who placed $3 million of the school’s money into Mr. Madoff’s firm. But it also sues BDO Seidman, the American arm of BDO International and the auditor for one of Mr. Merkin’s funds, Ascot Partners.
Posted by guest , May 14, 2009 12:24PM
@81-- whattaya got?
-CG
Posted by guest , May 14, 2009 1:59PM
Truth is Rentec has taken the wrong side of some obvius trades in the last couple of years which seriously raises some questions about their performance and supposedly Masters of the Universe fame. For instance, they were long a closed end fund that was trading 160% above NAV when you could have bought almost any fund trading below NAV just couple months ago.
Posted by guest , May 14, 2009 3:39PM
This I like. I'd go for Futures Tech and TCA Futures and the bd
SEC commissioners voted 5-0 today on a proposal to subject about 9,600 investment advisers to annual surprise inspections by independent auditors. About 370 money managers with direct custody of client holdings would also face yearly compliance exams to ensure they have adequate procedures to protect assets.
Posted by guest , May 14, 2009 5:04PM
http://www.nypost.com/seven/05142009/business/simons__hold_sp_169231.htm
nice rip off
Posted by guest , May 15, 2009 8:44AM
I don't know what @28's numbers are, but they are not the returns of the Medallion Fund. I have in my hand the document "Medallion Annual Report 1998" (that I just fished out of my basement filing cabinet). It gives the following numbers (in $1,000s):
Year Inital Cap Profit Return
1998 $1,092,588 $455,625 41.7%
1997 $829,443 $181,662 21.2%
1996 $637,029 $198,626 31.5%
@28's numbers are:
1998 31%
1997 31%
1996 28%
Not the same.
Posted by guest , May 15, 2009 8:58AM
@86 averages out to almost the same thing. all of the numbers look to me exactly like what has been leaked to alpha mag over the years
Posted by guest , May 15, 2009 9:38AM
@86
Something to do with fees perhaps?
Posted by guest , May 15, 2009 10:37AM
This is @86.
The numbers I have come right off the annual report doc. and are net of fees.
31% is a far call from 21% (1997 number). 42% is a far call from 31% (1998 number). Maybe the '96 error (31.5% vs 28% is due to the choice of vehicle, Medallion USA vs Medallion Bermuda etc?). Maybe I'll scan the whole document, it's the last one I have.
Posted by guest , May 15, 2009 10:55AM
@89
You have the actual docs that show the actual performance numbers. They're audited right? You could shut up the jackass who keeps blabbing about the audits with a scan.
Don't know where @28 got his numbers from, but perhaps they are best guesses by someone who was leaked rough numbers. Some of the other return numbers in the 2000's look on the low side as well.
Posted by guest , May 15, 2009 1:19PM
Chloe O'Brian is onto you
Posted by guest , May 18, 2009 8:25AM
@90 The scan is a good idea. 89 please post the scan if you can.
Posted by guest , May 18, 2009 1:11PM
@86 Its too bad you couldn't stay in because your stake (if the numbers are real) would be around 62,000,000 today. And if Jim found it in his heart not to charge fees, it would be worth around 420,000,000 usd. If you were a more asture investor and put your 630,000 usd in 1988 it would be worth 662,000,000 usd even after paying fees. whew!
Posted by guest , May 20, 2009 8:37AM
where is the scan @89?