Re:A Conversation with Renaissance Technologies CEO Peter Brown
by jjoonathan on Monday September 18, 2023 @11:32AM
(#37557615)
The problem with insider trading is that it leaves conspicuous footprints. Big trades before big swings might be anonymous to you and I, but they are not anonymous to the SEC so insider trading at scale is hard. I've heard a different cynical theory, but I have seen 0 evidence to back it up so grab your tinfoil hats and sign your "entertainment purposes only" waivers.
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Imagine that you had the ability to transmit money in a plausibly deniable manner from one party to another by placing trades.
Now imagine that you open a fund and start stealing from your customers using this transmission mechanism as a back door. No good - the performance of the fund will be poor. Nobody would buy it except for suckers, and suckers can be exploited without need for this kind of subtlety.
Now imagine that you open two funds: "Gold Medal Fund" and "Bronze Medal Fund" where the transmission mechanism is used to make Gold outperform and Bronze underperform. You still have the same problem, right? Nobody wants to buy Bronze Medal Fund. Ah, but now you can call up Joe Money Manager and offer him access to Gold Medal shares if he sells his clients Bronze Medal shares. Joe has heard that Gold Medal Fund outperforms, he wants those shares. Bronze Medal Fund hasn't been performing great but it has a plausible sounding thesis, big-name backing, and looks respectable enough for Joe to recommend, so he does.
Bam. You have now created a scalable mechanism for stealing investment returns from rich people who delegate their investment decisions. The best part? At almost every step it can be disguised and denied unless someone can unwind and prove the technically sophisticated transmission mechanism itself.
Now imagine that you open a fund and start stealing from your customers using this transmission mechanism as a back door. No good - the performance of the fund will be poor. Nobody would buy it except for suckers, and suckers can be exploited without need for this kind of subtlety.
Now imagine that you open two funds: "Gold Medal Fund" and "Bronze Medal Fund" where the transmission mechanism is used to make Gold outperform and Bronze underperform. You still have the same problem, right? Nobody wants to buy Bronze Medal Fund. Ah, but now you can call up Joe Money Manager and offer him access to Gold Medal shares if he sells his clients Bronze Medal shares. Joe has heard that Gold Medal Fund outperforms, he wants those shares. Bronze Medal Fund hasn't been performing great but it has a plausible sounding thesis, big-name backing, and looks respectable enough for Joe to recommend, so he does.
Bam. You have now created a scalable mechanism for stealing investment returns from rich people who delegate their investment decisions. The best part? At almost every step it can be disguised and denied unless someone can unwind and prove the technically sophisticated transmission mechanism itself.