Did you hear them says that apparently alot of these quant funds were copying Simmons' strategy and followed him over cliff? Reminds me alot of the LTCM debacle, when all the houses were copying LTCM's strategy.
Renaissance's Stock Hedge Fund Falls 8.7% in August (Update1)
By Katherine Burton
Aug. 10 (Bloomberg) -- James Simons's $29 billion Renaissance Institutional Equities Fund has fallen 8.7 percent so far in August as his computer models used to buy and sell stocks were overwhelmed by securities' price swings.
The two-year-old quantitative, or ``quant,'' hedge fund now has declined 7.4 percent for the year. Simons said other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.
``We have been caught in what appears to be a large wave of de-leveraging on the part of quantitative long/short hedge funds,'' the 69-year-old Simons said in a letter to investors.
A crisis stemming from subprime home-loan defaults in the U.S. has put a chill on credit markets and spread to equities across the world. As a result, central banks, including the U.S. Federal Reserve and European Central Bank, have added money to the banking system in unprecedented moves.
Simons, who was paid $1.7 billion last year, has one of the best records in the hedge-fund industry. His Medallion fund, which manages money only for Simons and his employees, has climbed at an average annual rate of more than 30 percent since 1988. It is ``solidly profitable'' this year, he said.
Renaissance Technologies Corp., based in East Setauket, New York, manages a total of $36.8 billion. Simons founded the firm 25 years ago after teaching mathematics at the Massachusetts Institute of Technology in Cambridge.
Funds run by Goldman Sachs Group Inc., Tykhe Capital LLC and Highbridge Capital Management LLC have lost money this month and sold holdings to reduce risk.
Market Swings
``One kind of market condition that these strategies will not do well in is the kind of market swings that we've seen over the last few weeks,'' said Andrew Lo, a finance professor at the MIT Sloan School of Management and founder of hedge-fund firm AlphaSimplex Group LLC, also in Cambridge.
The difference in yields between the riskiest corporate bonds and U.S. Treasuries has expanded about 1.5 percentage points since the start of June. Volatility, as measured by the Chicago Board Options Exchange SPX Volatility Index, has averaged more than 23 since the beginning of August. Between June 2003 and the end of July 2007, it averaged 14.
New York-based Tykhe Capital, which has $1.8 billion in assets, told investors that performance of its various share classes with some quantitative strategies range from minus 17 percent to minus 31 percent in the month through yesterday.
``We have taken significant steps to reduce market exposure,'' the firm said in a letter yesterday. The amount of borrowing in its statistical arbitrage and quantitative long/short master funds is less than one times the firm's net equity, the letter said.
To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net
Last Updated: August 10, 2007 14:59 EDT |
