Renaissance Technologies, every mention
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Verbatim, from the transcripts: the passages where Renaissance Technologies comes up
Renaissance Technologies (Audio) · Acquired
- ▶ 2:11:22 David Rosenthal And I don't think that's true here at Rentek.
- ▶ 2:12:00 David Rosenthal And at the end of the day, I think these three pieces to me are the core of this sort of tapestry of rent tech.
- ▶ 2:12:51 Ben Gilbert Rentech has 13 years of knowing that they basically have a machine that prints money.
- ▶ 2:15:41 Ben Gilbert So a big piece of this playbook that we didn't talk about is leverage, but every quant fund does leverage, and so Renaissance was just more clever than everyone else.
- ▶ 2:18:01 Ben Gilbert Forbes estimates that Jim Simons alone is worth about thirty billion dollars today, which kind of pencils with a bunch of other stats over the years that he owned about half of Renaissance.
- ▶ 2:18:24 Ben Gilbert So, an interesting thing to understand, I ran a hypothetical scenario of how much money do you think Renaissance the business makes a year in revenue?
- ▶ 2:21:33 Ben Gilbert And David, my question to you to open this section is specifically about Rentech's lifelong non-competes.
- ▶ 2:21:41 Ben Gilbert That feels like a big reason that they maintain their competitive advantage, and I'm curious if you agree with that, what would you put that under?
- ▶ 2:22:17 David Rosenthal I was thinking about this in the middle of the night, and I think there's three layers to the effective non-compete that happens with Rentech.
- ▶ 2:24:45 Ben Gilbert But I actually think the fact that they have clean data and they've been creating systems, like they have the best PhDs in the world.
- ▶ 2:24:57 Ben Gilbert And yet, they have probably the treasure trove of historical market data in the best format that nobody else has.
- ▶ 2:25:09 David Rosenthal So, one, I think it probably is true that they have better data than any other firm, thanks to Sandor Strauss and the work that he started doing.
- ▶ 2:25:21 David Rosenthal So they have that, and other firms don't.
- ▶ 2:25:43 David Rosenthal There's two ways that Rentech could work.
- ▶ 2:25:49 David Rosenthal And one version of how it works is they discovered something twenty-plus years ago that is a timeless secret, and they've been trading on that for twenty-plus years.
- ▶ 2:26:09 David Rosenthal Now, Rentech will say, they will all say that is a hundred percent not the way that it works.
- ▶ 2:26:29 David Rosenthal More likely, though, is that what Rentech does say is true, which is, no, there is no holy grail.
- ▶ 2:28:17 David Rosenthal I mean, they literally don't talk to anybody.
- ▶ 2:28:21 Ben Gilbert Although, well, they do have some very well-established relationships with electronic brokerages and different players in the trade execution chain.
- ▶ 2:28:32 Ben Gilbert I think they have very good trade execution and very fast market data.
- ▶ 2:28:37 Ben Gilbert Their ability to pull data out of the market is very high quality.
- ▶ 2:28:50 David Rosenthal Branding maybe applies in their ability to raise money for the institutional funds, but that's not a big part of the business.
- ▶ 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…
- ▶ 2:30:19 David Rosenthal Every incentive at Rentech is fully aligned to optimize fund size for performance in a way that is not true just about everywhere else.
- ▶ 2:30:31 David Rosenthal I think they have the most incentive of anybody to truly maximize performance we're able to achieve.
- ▶ 2:30:45 Ben Gilbert They are incentivized in a unique way that makes it so they're not willing to trade the dampener on performance to get those dollars.
- ▶ 2:31:10 Ben Gilbert They're just better than everyone else at this particular type of math and machine learning and they've been doing it for longer, so they're just gonna keep beating you.
- ▶ 2:31:20 David Rosenthal And that Rentech basically is a math department in a way that none of these other firms are.
- ▶ 2:32:10 Ben Gilbert Have persistently been able to out-execute their competitors.
- ▶ 2:34:40 David Rosenthal I bet at least half the people at Rentech on the research side could not read a balance sheet.
- ▶ 2:35:58 Ben Gilbert I think Rentech has basically, they haven't figured that out for the market.
- ▶ 2:36:45 David Rosenthal Yes, and I think when I've heard people from Rentech talk about this, they will all say the model does not actually understand the market, but it can predict and we can be so confident in its predictions that
- ▶ 2:37:23 Ben Gilbert Do you think Rentech was the birthplace of machine learning?
- ▶ 2:37:44 Ben Gilbert It's like the principles certainly came out of the same math community that spawned machine learning, but is what Rentech has figured out over the last couple decades
- ▶ 2:38:00 Ben Gilbert It may be the case that actually Rentech has beat everyone else to the punch, and they have a strong AI or something that is actually much more sophisticated than all the AI we have out in the world today, and they've just chosen that…
- ▶ 2:38:18 Ben Gilbert I mean, it could just be the case that Renaissance is just taking in as much unstructured data as it possibly can.
- ▶ 2:39:03 David Rosenthal Yeah, it was the exact same stew and the exact same cohort of people and social group and academic groups that Rentech came out of, that AI came out of.
- ▶ 2:39:33 David Rosenthal That is the foundation of Rentech.
- ▶ 2:40:13 Ben Gilbert I could be wrong, but I do not think modern Rentech does that.
- ▶ 2:42:04 Ben Gilbert So I think what Rentech sort of admitted is, we have no idea why anything is actually connected, but it doesn't matter.
- ▶ 2:42:21 David Rosenthal No, it is pretty much only Rentech and maybe a couple other people.
- ▶ 2:44:11 David Rosenthal My sense is Rentech is not a high-frequency trading shop.
- ▶ 2:44:51 David Rosenthal Rentech is world-class at disguising their trades.
- ▶ 2:45:41 Ben Gilbert And while it's never happened to Rentech,
- ▶ 2:46:44 Ben Gilbert So, whoever is in charge of the financial controls and safety systems at Rentech, that's a huge job for someone in this industry.
- ▶ 2:46:55 Ben Gilbert To kick off value creation, value capture, I have a provocative statement, which is, David, Renaissance Technologies is actually not in the investment business.
- ▶ 2:47:05 Ben Gilbert They are in the gambling business, and in particular, they're the house.
- ▶ 2:47:10 David Rosenthal Well, I would totally, I thought where you thought you were going with this, I was like, yes, I would totally agree they're not in the investment business.
- ▶ 2:47:14 David Rosenthal They have no idea how to invest.
- ▶ 2:47:17 Ben Gilbert I'll say this, they're not investors, and they're not in the investment business.
- ▶ 2:47:21 Ben Gilbert There is investment going on all around them in the markets that they trade in, but the fact that they're in those markets, they're not there as investors, they're there setting up shop as Caesar's Palace, letting everyone come in and do…
- ▶ 2:47:48 Ben Gilbert They're just,
- ▶ 2:47:49 Ben Gilbert There to collect their VIG on everyone who is willing to trade with them over all these years.
- ▶ 2:48:13 David Rosenthal They are not in the investment business, but they are providing a service.
- ▶ 2:49:23 David Rosenthal Similarly, I think you could make an argument, and I think this is probably quite accurate, that Rentec and all other quant firms like them are providing a service to the market in that they are allowing trades that people want to make
- ▶ 2:50:07 Ben Gilbert Creating more depth to a market makes it so that if we go back to the era that Renaissance was started, there's no chance that retail is able to function like it does today with zero transaction fees and people able to invest in all these…
- ▶ 2:51:34 David Rosenthal He's, you know, long retired from rent tech at this point, calls the head of his family office and says, what should we do with all the sell-off in the market?
- ▶ 2:55:06 Ben Gilbert What's the bull case for Rentech?
- ▶ 2:55:11 Ben Gilbert Right, like, they're gonna keep attracting all the smartest people in the world.
- ▶ 2:55:13 Ben Gilbert They're gonna have the ability to
- ▶ 2:55:18 Ben Gilbert They're not gonna get tempted to let the business of institutional funds become the dominant business.
- ▶ 2:55:28 Ben Gilbert Maybe, uh, that they're actually still ahead.
- ▶ 2:55:43 Ben Gilbert The bear case is things are changing, and I think things are changing basically on any axis is the bear case for them.
- ▶ 2:55:53 Ben Gilbert Maybe the fact that the tech industry has figured out these large language models, maybe that trickles into making it easier to compete with Rentech.
- ▶ 2:56:05 Ben Gilbert Like, maybe Rentech actually was here a decade before everyone else, and now everyone else has arrived to the party.
- ▶ 2:56:19 Ben Gilbert Peter Brown is a co-CEO, and they just announced that they're making the guy who was in charge of the institutional funds, David Lippey, he is becoming a co-CEO as well.
- ▶ 2:56:57 Ben Gilbert When you look on LinkedIn, I recognize a lot of the companies that people worked at who are more junior at Rentech.
- ▶ 2:57:03 Ben Gilbert And in the past, I think it would have been all people just out of university research shops, so I think if it's true that they're starting to see the same talent flow as everyone else, that would be concerning.
- ▶ 2:57:36 David Rosenthal What is the one thing for each of us personally from doing this work over the past month on Rentech that sticks with us?
- ▶ 2:58:21 David Rosenthal There, historically has not, from our research, and as best as we can tell currently, is not anything going on at Rentech that is frivolous.
- ▶ 2:58:32 David Rosenthal They are all very focused, which again to me then speaks back to the power of incentives.
- ▶ 2:59:26 Ben Gilbert I think, from what, everything we can tell from the outside, Renaissance actually has built a large-scale computer system that discovers relationships between different entities in the world.
- ▶ 2:59:53 Ben Gilbert That is my takeaway, is that they are the house, and they have an edge, and that edge is predicated on a graph of all the relationships between these entities that we think are just noise, and they know the signal.
- ▶ 3:04:57 David Rosenthal Knowingly spot any Rentech people there, but we may have.
- ▶ 3:06:42 David Rosenthal First, huge thank you to Greg Zuckerman, author of The Man Who Solved the Market, the canonical book out there about Rentech and Jim Simons.
- ▶ 3:07:58 Ben Gilbert And there's only sort of a couple chapters about Rentech, but some good stuff in there.
- ▶ 3:08:05 Ben Gilbert I think between that and the quants, it was sort of the first time there was really anything at all that was published about Rentech, so all those will be in the show notes.
- ▶ 3:08:16 David Rosenthal Other people to thank Howard Morgan, who we spoke to, which was so fun to get a bunch of the first-round history from him, and then, of course, the, you know, founding of Rentech and partnering with Jim and investing in each other's funds…
- ▶ 3:09:00 David Rosenthal Accelerate research, increase collaboration, rapidly deliver new machine learning models, all of the sorts of things that we were talking about here with Rentech.
- ▶ 3:09:14 David Rosenthal He was at .72 and Bridgewater, which isn't really quant sort of its own thing, but he was a long-time senior employee at both of those firms, and he gave us great, great perspective on the landscape of everybody out there and where Rentech…
Charlie Munger (Audio) · Acquired
- ▶ 6:51 Andrew Marks What do you think about the algorithms like Renaissance and stuff like that?
- ▶ 6:54 Charlie Munger Well, of course, Renaissance first algorithm was so simple.
- ▶ 6:59 Charlie Munger They shifted all this data from the past.
Amazon.com · Acquired
- ▶ 32:23 David Rosenthal And I think his model for this was Jim Simons, who in 1982 started Renaissance Technologies and Rentech.
- ▶ 32:49 David Rosenthal Dude, Rentech and Simons is unreal.
- ▶ 32:59 David Rosenthal We should do an episode on Rentech.
- ▶ 33:02 Ben Gilbert I mean, that's the interesting thing about Rentech is like, it's a fortress.
- ▶ 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.
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