Renaissance Technologies, a company known for its legendary hedge fund 'Medallion', has seen a significant reduction in the size of its hedge fund for external investors in recent years.

Renaissance is one of the most successful and mysterious institutions on Wall Street. It is basically divided into two parts: a public hedge fund for internal and external institutional investors, and the lucrative 'Medallion Fund', which is only available to employees.

The former includes Renaissance Institutional Equities Fund (RIEF), Renaissance Institutional Diversified Global Equity (RIDGE), and Renaissance Institutional Diversified Alpha (RIDA).

These external funds have recently performed poorly. The managed assets of RIEF have decreased from approximately 35.8 billion USD in early 2020 to about 19.6 billion USD, while RIDA and RIDGE, after the merger, now have a combined size of only 3.6 billion USD.

Nearly two-thirds of Renaissance's external assets have evaporated in the past five years.

For a long time, investors have been attracted by the astonishing returns of the 'Medallion' Fund.

Over the 30-year period from 1988 to 2018, the 'Medallion' Fund accumulated over 100 billion USD in profits, with an average annual ROI of 39% after deducting expenses. In comparison, Warren Buffett, the 'Oracle of Omaha', had an average annual ROI of 20.5% during the same period.

Investors hope that external funds of the Renaissance can also bring similar returns. However, the reality is that the strategies of external funds are significantly different from the 'Medal of Honor' and cannot replicate its extremely high ROI.

Five years ago, RIDA and RIDGE managed assets of 15 billion USD and 14.3 billion USD respectively. Today, the merged RIDA fund only manages 3.6 billion USD.

This means that nearly two-thirds of the external assets managed by the Renaissance have evaporated in the past five years, from 65.1 billion USD down to today's 23.2 billion USD.

The performance is so poor that hedge fund managers are urgently stepping in to try to explain the current situation of the company to investors.

Although the recent performance is worse than before, indicating a situation similar to that in 2020, it is not surprising that some risk-return ratios are as poor as what we are seeing now in our historical records.

Clearly, when volatility is high, it is more likely to see larger positive or negative returns, as this is essentially the definition of volatility.

In stark contrast, the 'Medal of Honor' achieved a staggering 76% increase at the end of 2020.

Despite the recovery of RIEF and RIDA's ROI reaching 14.6% and 20.1% respectively in 2021, investor confidence has not fully recovered and outflows of funds continue. According to insiders quoted by the Financial Times, the ROI of these two funds so far this year is 19.8% and 17.4% respectively.

"The magic" of the "Medal" fund has not permeated into external fund management.

Although the assets of the RIEF fund have rebounded from the low point in 2023, the growth is mainly due to the improvement in fund performance, not new capital inflows.

RIEF, RIDGE, and RIDA have attracted a large amount of investment due to the success of the "Medal". Although investors know that these external funds are different from the "Medal", they still hope to achieve similar returns from them.

Clifford Asness, co-founder of prominent hedge fund company AQR, mentioned in an interview that for other public funds open to external investors (such as RIEF), their strategies are relatively ordinary, relying on some common investment strategies and market factors.

Therefore, the "magic" of the "Medal" fund has not permeated into external fund management.

Although RIEF and RIDA performed poorly in the past few years, they performed remarkably well in 2023, possibly the best year since 2012.

External funds of Renaissance Technology may regain investor favor in the future, and the "summer" of quantitative investment seems to be thawing.

Editor/Lambor