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.

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.

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

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.

I looked at a few of these; none seems to take investment from average joes. Even if i show up with $1M in cash, doesn't look like any doors are open. Is that accurate?

With Renaissance (and a few others) a significant number of employees have an above average net worth, and choose to invest their spare capital with the fund, slowly crowding out any outsiders.

Bona fide lack of access for outside investors is probably a strongly positive signal in this industry.

To most of these firms, a new client with $1mln is not worth the hassle at all. On the off chance some capacity is freed up, its given as priority to clients who have 100s of millions invested already. To a degree it's a privilege to invest in this league.

Yeah. A well-performing fund will never open its books for a seven figure check. They could likely find a senior employee (not even a partner) willing to invest that.

Another investor is another person you have to have a relationship with.

can a regular joe invest in that RenTech fund?

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

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.

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.

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.

If one vendor is offering a solution that vastly exceeds the expectation of all other vendors, current and former, you should ask a lot of questions.

Either they're full of shit, or you're about to learn about some new breakthrough that everyone will be using in the future (unfortunately some of the former will claim to be the latter).

Wow thats fascinating. So there's no way in I imagine... are their trades public?

>The Medallion fund is considered to be one of the most successful hedge funds ever. It has averaged a 71.8% annual return, before fees, from 1994 through mid-2014.[33] The fund has been closed to outside investors since 1993[34] and is available only to current and past employees and their families.

This number has been cited often. This is not to be skeptical rather to crunch the claim:

Suppose Rentech started with $50M AUM in 1994 (reasonable assumption for a small hedge fund); 50M * (1.718)^20 = 2.51 Trillion in 2014. What am I missing here?

The Medallion Fund does not compound... the return is not re-invested into the principal but disseminated to investors annually. The strategy they play only works up to a certain level of capital.

They have a maximum capacity of a few billion dollars in the fund. Every year they return the money they made so the fund stays the same size. Strategies don't scale indefinitely

If you had a 10% return one year and a 90% return the next, for an average of 50%, your total principal would increase by 1.1 * 1.9 = 2.09. If you calculate by the average instead (1.5 * 1.5 = 2.25) the rate of return is higher, and that error may have compounded in your calculation.