Medallion Fund, every mention
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Vanguard: The communist capitalist who saved investors a trillion dollars (Audio) · Acquired
- ▶ 2:33:33 Ben Gilbert I wonder, we, we gotta ask Ted if it was an option to pick the Rentech Medallion Fund.
Renaissance Technologies (Audio) · Acquired
- ▶ 2:53 Ben Gilbert To add to everything else that I just said, Rentech's flagship medallion fund doesn't take any outside investors.
- ▶ 58:07 David Rosenthal They name it the Medallion Fund.
- ▶ 58:16 Ben Gilbert The Medallion Fund is the crown jewel, or you might even say actually the only interesting thing about Renaissance.
- ▶ 58:49 Ben Gilbert But the seeds and the ideas, the huge amount of clean data, the robust engineering infrastructure to process all that data, the mining of signals from data to figure out what trading strategies to execute, that is really starting to form…
- ▶ 59:31 David Rosenthal But before we get into the just absolutely insane run that this medallion fund is about to go on that continues right through to this day, now is the perfect time for another story about ServiceNow.
- ▶ 1:02:26 David Rosenthal So, they've got this grand new plan and vision with the Medallion Fund.
- ▶ 1:02:32 David Rosenthal Unfortunately, right out of the gate, the fund stumbles a bit, and Axe ends up getting burned out.
- ▶ 1:08:02 David Rosenthal Now, at this point in time, when the Medallion Fund is first starting to work in, say, late, 1989, early 19 90,
- ▶ 1:08:13 David Rosenthal Medallion was about twenty-seven million dollars under management when Burlekamp bought out Axe.
- ▶ 1:08:19 David Rosenthal In 1990, the first full year after that, the fund gains 77.8% gross.
- ▶ 1:09:07 David Rosenthal So Cary, I've seen different sources of whether it was 20 or 25% in the early days, but the management fee on the fund was five percent, which is crazy.
- ▶ 1:11:51 Ben Gilbert They've generated on the order of sixty billion dollars of performance fees for the owners of the fund over their entire lifetime.
- ▶ 1:12:22 David Rosenthal I would estimate probably a 152 hundred billion dollars that have come out of Medallion over the last 35 years.
- ▶ 1:12:34 David Rosenthal He rolls everything in the Medallion fund back into Rentech itself, moves everything back to Stony Brook.
- ▶ 1:13:43 David Rosenthal Laufer had been consulting with Medallion
- ▶ 1:14:42 David Rosenthal This is a quarter century from the time that Baum and Simons write the paper at IDA until Medallion really starts to work.
- ▶ 1:16:07 David Rosenthal At the end of 1993, Simons decides to close the fund and not allow new LPs in.
- ▶ 1:16:35 David Rosenthal Medallion at this point is stacking up cash.
- ▶ 1:17:43 David Rosenthal Up to this point, the vast majority of what Medallion is doing is trading currencies and commodities, not equities.
- ▶ 1:18:14 David Rosenthal There's just not that much volume, and you just can't trade that much without slippage becoming a huge issue, and Medallion is now hitting that limit.
- ▶ 1:31:19 David Rosenthal So by the end of the 19 nineties, Medallion has almost two billion dollars in assets under management.
- ▶ 1:32:51 David Rosenthal Medallion is up a 128% gross on the air.
- ▶ 1:32:57 David Rosenthal High volatility is when Medallion really shines.
- ▶ 1:33:20 Ben Gilbert They're looking for scenarios where the market's going to act erratically, and they can take advantage of people making decisions that they shouldn't, and any time any investors are under pressure, there's a little bit of edge that's going…
- ▶ 1:33:58 David Rosenthal So the first couple days of the tech bubble bursting, Medallion actually takes a bunch of large losses.
- ▶ 1:42:52 David Rosenthal The Medallion Fund is now at five billion dollars in assets under management that they're trading.
- ▶ 1:43:34 David Rosenthal So, in 2003, they start kicking all the outside investors out of Medallion, but clearly there's still lots of institutional demand to invest with Renaissance.
- ▶ 1:44:00 Ben Gilbert Sometimes there's just more profitable strategies than they had the capital to take advantage of in Medallion, but they weren't sure it would be on a durable basis.
- ▶ 1:44:09 Ben Gilbert If they were sure that they could manage 10, 15, 20, twenty-five billion in Medallion all the time, then they would grow to that.
- ▶ 1:44:26 Ben Gilbert That a lot of the times those strategies aren't really what Medallion is set up to do.
- ▶ 1:46:33 Ben Gilbert There's all these stories about how the marketing documents literally say this is not the medallion fund.
- ▶ 1:46:37 Ben Gilbert We don't promise returns like the medallion fund.
- ▶ 1:46:39 Ben Gilbert In fact, we're not charging for it like the medallion fund.
- ▶ 1:46:43 Ben Gilbert Fees in carry-on medallion went up to, what, five in 44.
- ▶ 1:47:11 David Rosenthal Anywhere near how Medallion has performed.
- ▶ 1:47:17 Ben Gilbert But is it Medallion?
- ▶ 1:47:18 Ben Gilbert It's not special in the way the Medallion is special.
- ▶ 1:47:26 Ben Gilbert So I spent a bunch of time scrolling through ThirteenFs over the last decade from the Medallion filings, and they're all from, I think they have two institutional funds.
- ▶ 1:48:42 David Rosenthal The way that some folks we talked to described the difference between the institutional funds and medallion to us is that medallions average hold time for their trades and positions is call it like a day, maybe a day and a half.
- ▶ 1:49:04 David Rosenthal So across 4300 stocks in the portfolio, there's a lot of trading activity that happens on any given day, but it's a lot slower in any given name than Medallion would be.
- ▶ 1:50:00 Ben Gilbert No, it's not Medallion.
- ▶ 1:50:10 David Rosenthal Speaking of the fund that is the reason why we are covering this company on this show, we set up during the tech bubble crash that volatility is when Medallion really shines.
- ▶ 1:50:27 David Rosenthal 2007 medallion does a 136% gross.
- ▶ 1:50:34 David Rosenthal 2008 medallion does a 152% gross.
- ▶ 1:51:46 David Rosenthal Well, there's one slight nuance to that, but I don't know how much it holds water, and the apologist nuance would be, well, Warren Buffett could be on the other side of the trade, and Medallion could make money on that trade with Warren…
- ▶ 1:52:11 David Rosenthal So I think the argument against that, though, is that Medallion sold after a day and a half to somebody else who bought at that lower price.
- ▶ 1:52:28 David Rosenthal The direct counterparty of Medallion and the quant industry, writ large, might not take the loss, but somebody is gonna take the loss along the way.
- ▶ 1:53:56 David Rosenthal And importantly, during periods of peak volatility, like, say, twenty-twenty, Medallion continues to shoot the lights out.
- ▶ 1:54:05 David Rosenthal So, from at least the data that we were able to find on Medallion's performance over the past few years, twenty-twenty, they were up a 149% gross and 76% net.
- ▶ 1:54:22 David Rosenthal And one way to look at it, which may not be the be-all and end-all, but I think is a good way to compare Jim's era at Medallion versus Peter and Bob's era.
- ▶ 1:54:33 David Rosenthal During Jim's tenure, Medallion's total aggregate IRR from 1988 when the fund was formed to 2009 when he retired was 63.5% gross annual returns
- ▶ 1:55:21 David Rosenthal So, yeah, I think Medallion is doing fine.
- ▶ 1:55:34 Ben Gilbert And if so, that just means that they continue to find more profitable strategies within Medallion to keep those same unbelievable returns at larger sizes.
- ▶ 1:55:48 David Rosenthal So as far as we can tell, Ben, you alluded to this a bit at the beginning of the episode, and as far as anybody else can tell, Medallion has by far the best investing track record of any single investment vehicle in history.
- ▶ 1:56:06 David Rosenthal So during the entire lifetime so far of Medallion, from 1988
- ▶ 2:03:32 David Rosenthal So let's call it, I don't know, a 152 hundred people max who are like hands on the wheel here for Medallion.
- ▶ 2:04:09 Ben Gilbert They peaked at over a hundred billion, but they're currently between 60 and seventy billion that they manage on top of the 10 or 15 that's in the medallion fund.
- ▶ 2:06:47 David Rosenthal I think the third puzzle piece of what makes Rentech so unique and defensible is Medallion's structure itself.
- ▶ 2:08:05 David Rosenthal This is a value transfer mechanism within the firm from the tenure base to the current people who are working on Medallion in any given year.
- ▶ 2:08:19 David Rosenthal When people come into Rentech, they obviously have way less wealth than the people who've been there for a long time, both from the direct returns that you're getting every year from working there, and just your investment percentage of…
- ▶ 2:08:45 David Rosenthal At Rentech, be the medallion fund.
- ▶ 2:08:49 David Rosenthal yeah, so like, if you work there, your four oh one K is the medallion fund.
- ▶ 2:09:02 David Rosenthal Okay, so given that though, how do you avoid the incentive for a group of talented younger folks to split off and go start their own medallion fund?
- ▶ 2:09:33 David Rosenthal So I think it's the 44% carry structure that does it, because basically what you're saying is every year, five percent management fee, so five percent off the top, and then 44% of performance.
- ▶ 2:14:06 Ben Gilbert But for all intents and purposes, they were Medallion's property.
- ▶ 2:14:10 Ben Gilbert Medallion saying, well, the way we're going to lever up is there's a basket.
- ▶ 2:14:30 Ben Gilbert So anyway, all day, Medallion's computer sent automated instructions to the banks, sometimes in order a minute or even a second.
- ▶ 2:14:37 Ben Gilbert The options gave Medallion the ability to borrow significantly more than it otherwise would be allowed to.
- ▶ 2:14:48 Ben Gilbert By contrast, Medallion's option strategy allowed it to have 12 dollars and 50 cents worth of financial instruments for every dollar of cash.
- ▶ 2:17:44 Ben Gilbert So today, we've talked about Medallion, 10 or fifteen billion, depending on who you ask.
- ▶ 2:18:12 Ben Gilbert The returns, obviously, the medallion fund generated approximately 66% annualized from 1988 to twenty-twenty after those fees was about 39%.
- ▶ 2:18:55 Ben Gilbert Well, let's say Medallion does their average 66% gross on fifteen billion.
- ▶ 2:19:08 Ben Gilbert So a total of five billion from Medallion and 1.2 billion from the institutional side of the business.
- ▶ 2:19:15 Ben Gilbert Now, of course, the employees are the investors in Medallion, so you could just argue it's actually silly to cut them up, but
- ▶ 2:19:25 David Rosenthal Cause that's not including the LP return on medallion.
- ▶ 2:19:47 Ben Gilbert The fact that they do, let's say, Medallion alone.
- ▶ 2:20:38 David Rosenthal I wonder, too, if the fee element of Medallion basically pays the base salaries for the current team.
- ▶ 2:20:48 Ben Gilbert If you're, uh, someone who has done a data center build out before, or has any way to sort of back into what the costs of Medallion's operating expenses are on the compute and data and network side, we would love to hear from you.
- ▶ 2:29:58 David Rosenthal And I think the counter positioning for Rentech, or for Medallion specifically, is one, I do think, the single model approach versus the multi-model, multi-strategy approach that most others have, does have benefits, like I was talking…
- ▶ 2:33:35 Ben Gilbert But if you just look at Medallion,
- ▶ 2:43:45 Ben Gilbert And that, of course, leads us to Medallion, which is in the slow and smart quadrant.
- ▶ 2:50:53 Ben Gilbert They're also not all medallion.
- ▶ 2:51:08 Ben Gilbert On average, medallion will not lose money to you, but you know, there are plenty of other
- ▶ 2:55:30 David Rosenthal The bull case for the GP and LP stakeholders in Medallion, which is, I don't know, 500 people in the world, and none of the rest of us can get any exposure to it.
- ▶ 2:56:37 Ben Gilbert and maybe eventually CEO if you believe the medallion is the special thing and the institutional funds are sort of a blemish on the business.
- ▶ 3:07:00 David Rosenthal Medallion's investment returns, and I know he worked so hard to get that table together that is now all over the internet, as it should be.
Amazon.com · Acquired
- ▶ 33:06 David Rosenthal So, supposedly, the Core Medallion Fund, which is now all private capital of Rentech employees and Simons himself, like there's no outside investors, averaged a 66.1% annual return from 1988 to 2018.