I examined a few top-end funds to understand who takes the leading positions in the world, I’ll share fees, if anyone has something to add or fix, I will be glad to feedback!
Renaissance Technologies Hedge Fund
The very top of the tops in my opinion is just a typewriter, of which little is known.
Jim Simons, a math genius and former hacker,founded in 1982 one of the world's largest hedge funds - Renaissance Technologies. He received his bachelor's degree in mathematics from the Massachusetts Institute of Technology in 1958 and his Ph.D. in mathematics from the University of California at Berkeley under the direction of Bertram Costant in 1961, at the age of 23. First, he worked as a teacher at the Massachusetts Institute of Technology, and then at Harvard, after which he worked at the US Department of Defense. Then, on one bad day, when he openly expressed his pacifist views on the Vietnam War in public, he was fired, which forced him to return to intellectual circles.
Simons is known in the scientific community for hiswork, the Chern - Simons theory, which is fundamental in modern theoretical physics. There he uses some theories, for example - how gravitational fields interact with matter, and other advanced theories from superstrings to black holes.
Renaissance Technologies along with severalother funds have synthesized terabytes of data daily and extracted information signals from petabytes of data for almost two decades, long before Big Data and the current form of data analytics.
Renaissance is a company with a predominantlya scientific approach to investment, using, preferably, those who have non-financial experience in quantitative financial research. They are interested in mathematicians, extras, pure and experimental physicists, astronomers and programmers. The Wall Street experience is discouraged, and scientific talent is much appreciated. In Renaissance, it is widely believed that the herd mentality among business school graduates is to blame for the low profitability of investors. Renaissance employs some 150 researchers and programmers, half of whom have doctorates in science, on their 50-acre campus on East Setauket on Long Island, NY, near Stony Brook State University of New York. The mathematician Isador Singer called the Renaissance East Setauket office the best department of physics and mathematics in the world.
Company administrative and support functionsperformed from her office in Manhattan in New York. The company is secretive about the work of its business, and very little is known about it. The company is known for its ability to hire and retain scientific personnel, as well as for the fact that there is practically no turnover of staff, and for the fact that its researchers agree with obligations in the field of intellectual property by signing non-competitive documents and non-disclosure agreements.
Some also associate the firm’s work withusing methods of processing financial signals, such as pattern recognition. The Quants book talks about hiring speech recognition experts, many from IBM, including current company executives.
Flagship foundation of the Renaissance Medallion whichIt is closed and works only for employees and early investors of the fund, it is famous for the best record in the history of investments, returning more than 66 percent a year before fees and 39 pr
For more than twenty years, hedge fundRenaissance Technologies, trading in markets around the world, uses sophisticated mathematical models to analyze and execute trades. The fund uses computer models to predict price changes, these models are based on the analysis of as much data as possible, and then on the search for non-random movements for forecasting. The main strategy is quantum-oriented, which means that it relies only on mathematical and statistical methods for making investments.
The main strategy is statistical arbitrage onportfolio level pushed to the limit. In essence, portfolios of long and short positions are created that hedge market risk, industry risk, and any other type of risk that Renaissance can statistically predict. An extreme degree of hedging reduces the net rate of return, but portfolio volatility is further reduced. The standard deviation of the portfolio value at a future date is much lower than its expected value. Consequently, with a large number of transactions, the law of large numbers ensures that the probability of loss is very small. In such a situation, the leverage multiplies both the expected return and the volatility by the same value, so even with a high leverage the probability of loss remains very small.
General strategy properties can be inferred fromstatements of the Renaissance at the hearings of the Senate Permanent Subcommittee on Investigations of July 22, 2014. You can also look at the rest of the documents of this hearing.
It should be emphasized that the strategy itself is only part of a very well-functioning mechanism.
What makes a fund so profitable isin constant and thorough improvement of all aspects of the trading system. From technological aspects, such as hardware and software, to other aspects of the system on which other funds usually cannot focus. They have a great alpha model, but order execution algorithms, data flows / cleaning processes, and transaction cost models are considered (at least) equally important.
Some famous trading approaches thatused or used in Medallion: hidden Markov models (one of the earliest employees was Leonard Baum, the inventor of the Baum-Welch algorithm - it improved the first Medallion foundation strategy), speech recognition, high-frequency trading and independent machine learning methods for finding short-term models in financial time series.
Also on the open spaces was found the structure of the Medallion trading system (data collected from various sources and based on the personal experience of the author):
• Infrastructure / execution: software scientists talk about the mundane realities of large-scale autonomous and online data management, risk management, multi-level execution of applications;
• Applied math: “Natural scientists”, with an emphasis on modern physics (most of which is based on differential geometry and statistical mechanics), this approach is reasonable, given the complex mathematical and statistical modeling;
• Multidimensionality: analysis and generation of signals from multidimensional spaces;
• Connection of models: RenTech grew through a combination of small acquisitions and internal development, suggesting that the “predictive model” (historically called the “Base System”) is not one, but rather a collection of heterogeneous models that are dynamically overlapping and blending;
• Computational linguistics: numerous high-level people working in the field of speech recognition, including those from IBM, among whom many have numerous achievements over the past 30 years in the field of signal processing and statistical information theory (for example, Mathematics of Statistical Machine Translation, Brown, Pietra and Mercer);
P.S. If you are interested in reading me and wondering how I build my international hedge fund, deals, strategies and problems along the way, come to help in a telegram chat https://t.me/drsombre