Hedge Fund Manager Simmons to Retire

October 11, 2009 · Leave a Comment

by Jenny Strasburg and Scott Patterson (WSJ)

James Simons, who’s led one of the world’s most profitable hedge funds for nearly three decades and helped pioneer computer-driven trading, will retire as chief executive of his firm, Renaissance Technologies, at the start of next year.

In an afternoon meeting Thursday at his firm’s offices on New York’s Long Island, Mr. Simons, 71, told employees of his decision and named his successors.

“I have led the organization and its predecessor for thirty one years, and it is definitely time to pass the torch,” Mr. Simons wrote in a letter sent to investors Thursday.

Current co-presidents Peter Brown and Robert Mercer will be co-heads. The veteran insiders joined Renaissance in the 1990s from International Business Machines’ speech-recognition group, and have been considered likely successors to the CEO post.

They’re taking over one of the biggest, and most secretive, hedge-fund firms, with $17 billion in assets. At its peak, Renaissance assets totaled $36 billion, but that number declined as 2008 losses and redemptions took their toll.

Renaissance’s Medallion fund has been one of the most consistent money-makers in the hedge fund world, returning an average of more than 30% a year since its 1988 inception.

Mr. Simons built a reputation as one of the first managers to pursue “quant” investing. The approach involves judging securities by mathematical measures of their value rather than by fundamental research, for example about a company’s management skills or market share. Medallion has been a pioneer in quantitative and high-speed trading, which involves using computer-driven programs to capture fleeting changes in markets.

Mr. Simons plans to remain nonexecutive chairman and keep billions of dollars invested in Renaissance’s hedge funds, he told investors Thursday. He’ll continue to attend Renaissance executive-committee meetings.

Unlike many firms led by their founders, Mr. Simons has been honing his succession plan for several years, insiders say. About two years ago, Mr. Simons promoted Messrs. Brown and Mercer from executive vice president to co-presidents, directly under him in the Renaissance hierarchy.

Mr. Simons has discussed stepping aside in the past, only to back off the plan.

“The reality is he’s gradually been stepping back for some time,” Robert Frey, a former Renaissance managing director, said in an interview Thursday. Mr. Frey, an investor in several Renaissance funds, said the move by Mr. Simons won’t impact his investment plans.

As he built Renaissance, Mr. Simons himself became a billionaire several times over. He poured big chunks of his wealth into math and science education and autism research, interests that will claim more of his time after retirement.

Mr. Simons is an award-winning mathematician who worked for a time in the 1960s as a code-breaker for the Institute for Defense Analyses, a research group. He later became head of Stony Brook University’s math department on Long Island, turning it into a world-class institution by drawing some of the best talent from around the country.

An avid poker player, he began investing full time in the 1970s and soon became interested in using his math skills to make money. Along with several other mathematicians, he launched Medallion, becoming an early practitioner of quantitative investing along with David Shaw, founder of D.E. Shaw Group.

Renaissance employs scores of Ph.D.s focused on developing computer models to identify when to buy and sell stocks, bonds and other securities. Many employees who join the firm don’t leave until they retire.

This year, Mr. Simons and fellow Renaissance executives have faced questions from some clients over the disparity between their returns and the big profits of Medallion, held primarily by Renaissance insiders.

Renaissance executives say Medallion employs a different strategy from the newer funds, called Institutional Equities and Institutional Futures. The equities fund, with $5.5 billion, is down 9% this year through September, and the futures fund, with close to $3 billion, is up roughly 2%, according to a person familiar with the matter.

Among missteps in his career, Mr. Simons helped lead some investors into the Ponzi scheme masterminded by Bernard Madoff. He helped steer Stony Brook University’s investment committee into a $500,000 allocation in 1991, and later recommended withdrawal. The school eventually faced a multi-million dollar loss in the fraud.

In September, a Securities and Exchange Commission watchdog report revealed that a Renaissance fund had invested indirectly in Mr. Madoff’s operation. Executives at Renaissance eventually became suspicious and pulled their money out.

Categories: News
Tagged: investments, quantitative, renaissance, retire, simmons, WSJ

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