[fractionalhare]

This probably comes as a shock to people outside the quant finance industry, but RenTech isn't the only game in town when it comes to regularly beating the market by one or two standard deviations, year after year. They're just the most famous and have a certain je nais se quois.

The red flag to look out for is extraordinarily low variance of returns, not extraordinarily high mean of returns. Madoff never promised more than about 12%, but he promised to be within 1% of that all the time. If you look at RenTech's Medallion returns since 1988, they're consistently between 30% and 120%. They're not slamming down the same percentile every year.

It's one thing to beat the market - it's still an incredibly difficult feat to do it consistently, but there's an element of chance involved. You won't beat by the same margin every year, even if you do beat every year. If you're hitting similar returns year after year, that implies your work is completely decoupled from the inherent randomness of market dynamics.

[duxup]

IIRC the folks who tried to raise the red flag on Madoff early on was because of what you describe. The numbers just didn't follow any kind of market change often enough / have enough fluctuation to make sense at all.

[standeven]

If you don't mind me asking, who are the other games in town?

[fractionalhare]

Basically any established HFT, though they're market making instead of market taking. TGS. Baupost. Soros had an excellent run for like 30 years. Simons' family office, Euclidean, does well. A lot of under the radar family offices which don't have stringent reporting requirements. Various groups in Citadel, Point72 and Millenium. Appaloosa. A bunch of prop trading groups in the Chicago area. And outside of quant, the top long/short equity funds regularly do well. Like Coatue.

[silicon2401]

can a regular joe invest in that RenTech fund?

[qeternity]

No, not even the biggest investors can. It’s for RenTech’s employees only.

[imtringued]

Actually, it doesn't sound impressive to me at all. If a fund gets 30% ROI per year then I assume that the fund is severely underfunded. After all, if they were truly that good at allocating capital then just give them 100 billion dollars and let them single handedly run the entirety of the US economy.

[JamesSwift]

Scale is a large factor in how well these funds can perform. Even Buffet famously talks about how difficult it is to allocate order-of-magnitude larger amounts of money, because the opportunities are harder to find and you affect the market more as you increase your buying.

[SkipperCat]

There's a good amount of funds who actively keep their AUM low. If they have too much money in their strategy, it will discovered and that kills the golden goose. Or, there's just not enough liquidity in the instruments traded and the money would just be idle. Lots of high alpha funds have forced redemption just for these reasons alone.