Bloomberg reports that RenTec’s $18 billion Renaissance Institutional Equities Fund has declined twelve percent since May. A lot of people are all, “It looks bad but it’s actually amazing how small Ren’s worst drawdowns are,” and yeah, if you want to be all clinical about it, it is amazing—amazing that there could be supposedly clear headed thinkers out there, veterans even (I was quoting my close personal friend, Julian Robertson just then) who still fail to get it. Any loss, big or small, for RenTec, means fewer cigarettes in James “18 Packs A Day” Simons’s pockets. Cuts are going to have to come from somewhere, and we all know Big J isn’t going to stop funding autism research, or giving money to Stony Brook, or buying bull ride rounds for everyone at Matty T’s Roadhouse. He’s going to start smoking less. That’s not something we want to see happen so Carney’s agreed to take a later flight and drive out to Long Island with a couple of cartons, on me. If you care at all about the bearded one’s black lung, you’ll do the same. If you don't have the time to make the drive to Setauket, call the Dealbreaker delivery service line, at 203-890-2000. We’ll get the job done.

Simons, Mandel Post Biggest Drop in Hedge Fund Slump [Bloomgerg]

Market/lady friend/mahjong troubles got you down? Cheer up—you now have the unique opportunity to own a tiny part of Renaissance Technologies (provided, of course, that you’re an institutional and/or sophisticated investor, which we’ve been told by Ad Sales you all are, which would explain how you’re able to spring for those pricey six-packs of Mike’s H.L. with such ease). The greatest hedge ever run out of Setauket, Long Island is said to be planning a minority stake sale in the coming weeks (though, predictably, the sale has been denied, for now). While AQR and KKR (and DVR and DDR) have reportedly been proceeding cautiously with their planned IPOs in the wake of some fireworks in the credit market, James Simons is confident things will work themselves out, and that there will be a demand for a little piece of James at home, as well as in Asia and the Middle East. (Rep from Goldman: “it’s not just the Ladies that Love Cool James, that's all I'm saying.")

The $30 billion fund is apparently going with stake sales similar to those of super secretive SAC, as they would allow them to raise capital but not be forced to reveal any major information about RT's 7th grade math-based trading schemes. Despite having momentarily jumped on the summer losses bandwagon, Renaissance’s flagship Medallion is said to be up for the year.

Bullish US hedge fund may sell stake [FT]

Kids today. They all want jobs in hedge funds and private equity, and, what’s more, they don’t just want to work in the aforementioned fields—the little punks want to run them. They all want to be James Simons, they all want to be Steve Schwarzman; they all want wicked cool beards, they all want to tower over the crowd at a perch of 5’6”. Where do they get off?

There are two and a half reasons for the career aspirations of today’s youth. 0-1 is that Simons made $1.7 billion last year, with the combined income of the top 25 HF managers exceeding $14 billion. So that’s somewhat appealing. (Schwarzman also did okay for himself). 1-1.5 enables 0-1: favorable tax treatment, i.e. 35% v. 15%, the latter of which saved Simons a few hundge mill in taxes last year. If you’re a kid and you’re saying to yourself “15 or 35, what shall I do?” you probably don’t need much time to come up with an answer. (We know 15 is for carried interest and not total income, we’re just trying to make a point, so settle down trigger finger commenters and save your vitriol for whatever grammatical error is bound to come next).

1.5-2.5 boils down to stupidity and arrogance being a bad combination. Robert Frank writes that the market is a “winner-take-all market— essentially a tournament in which a handful of winners are selected from a much larger field of initial contestants.” Why is the field so overcrowded? Because people overestimate themselves and think that they, not the guy next to them or the guy next to him, have what it takes to earn $1.7 billion/yr. Apparently more than 90% of workers believe they are more productive than their average colleague.

It’s probably true that 90% of your colleagues are incompetent and lazy. But who’s reading Dealbreaker.com right now when you could be doing work? This “overconfidence bias,” according to Frank, puts talented people into an oversaturated field when their skills could be better used elsewhere (like I-banking!), adds no economic value and puts us further and further from achieving our goal of peace in the Middle East. That’s why he advocates making the “after-tax rewards…a little less spectacular,” so that less people want to work in hedge funds and P.E. and raises the attractive quotient of other fields, “ones in which extra talent would yield substantial gains.”

Raise the tax. Don’t raise the tax. Whatever. Let’s attack the problem at the root and lucky for us, the Wall Street Journal has a list of HF and PE enemies on hand. Who or what caused an entire generation to ballpark its earning potential at $1 billion-or-so/yr? Mr. Rogers.

That’s right—you can send your pipe bombs to the estate of late Fred Rogers, who told all small children that they were “special,” even the ugly ones.

"Mr. Rogers spent years telling little creeps that he liked them just the way they were. He should have been telling them there was a lot of room for improvement. ... Nice as he was, and as good as his intentions may have been, he did a disservice."

Indeed! Because of Mr. Self-esteem and that puppet king in the bizarre alternate universe, everyone thinks they can eat $40 crab legs. And you know who else is to blame? The parents. Too much “A for effort,” not enough “you’re a moron.” Too much “I believe in you,” not enough “You will fail.” Too much, “You can be Stevie Cohen when you grow up,” not enough “hopefully McDonald’s is hiring.”

The overcrowding of these fields as a result of coddling and child-rearing techniques that foster confidence and self-worth (read: entitlement) is a problem that must be stopped.

We’re doing our part. When we held our six month-old niece a few weeks back, we didn’t look into her eyes and say “You can do anything you want!” like we’re sure our brother and sister-in-law do on a daily basis. We said “Listen, the bottom line is you’ll probably be overeducated but not necessarily that gifted. And you’re also a woman and a (1/2) Jew to boot. And your father couldn't tell time until he was 13. So I’m not exactly sure what we’re looking at but I know it’s not ‘hedge fund manager,’ at least not at a reputable shop. Let’s set the bar at eye-level and check back in a few years. Good talk.”

A Career in Hedge Funds and the Price of Overcrowding [NYT]
Blame It on Mr. Rogers: Why Young Adults Feel So Entitled [WSJ]

The new issue of Hedge Fund Alert reports that Renaissance Technologies will launch a managed-futures vehicle in October with a staggering $25 billion of investment capacity, clearly posing a threat, or the threat of a threat, to the field. James Simons, founder of Renaissance said that the trading strategy will be somewhere between the Medallion vehicle (mostly futures with some stocks) and the Renaissance Institutional Equities Fund (only US stocks). Simons noted that “The planned fund will take a longer-term approach to investing than Medallion, which whips money in and out of futures positions.”

Renaissance founder James Simons, the 69 year old former MIT and Harvard Math professor, likes to keep things in the academy of higher learning, and higher returns. This noble search for veritas has produced a few years of $1bn+ take home pay, which is some tenure track. Does Simons even dip into the Wall Street talent pool? No, according to his keynote address at the International Association of Financial Engineers annual conference in New York:

We hire physicists, mathematicians, astronomers and computer scientists and they typically know nothing about finance. We haven't hired out of Wall Street at all.

Is this proof that the machines, or at least the cyborg quants (that kid who never talked in your freshman dorm, who you only saw in the hall bathroom, and not to shower) have won? Arguably the most successful hedge fund in the world completely ignores Wall Street (and the US, as most new hiring is done from the international talent pool), and even gets away with asking people to drop their drawers when investing.

Renaissance has varying fee structures but is most known for the 5 and 44 gouging in the $6bn Medallion Fund, which we still think counts as gouging, just on principle, despite the post fee 33% annual returns in the 15 years prior to 2004 (at least according to marketing materials - what happened in 2005 anyway?). We don't begrudge it, we know the returns are still nuts, and if people will pay it, Simons is more than entitled to jack those fees up, but 5 and 44 sets that disturbing precedent for the cocky hedge fund manager who's had a couple of good years (in this market - real tough...) and starts charging an insane amount (then takes a bath in the next market correction). Hedge fund fees are going up across the Street (along with the minimum liquid net worth requirement from $1mm to $2.5mm), making hedge funds even more inaccessible to the mid-level rich, opposed to the very rich.

The 2005 vintage RIEF fund, which consists of 3,000-4,000 mostly long positions on any given day has lower fees, and a reported capacity of $100bn (imagine $5bn a year just in management fees, or at least $2bn+).

Renaissance hedge fund: Only scientists need apply [Reuters]