Story of James H. Simons

http://www.ft.com/cms/s/722470d0-f4e7-11db-b748-000b5df10621.htmlThe billion dollar boffinBy Ben WhitePublished: April 27 2007 19:03 Last updated: April 27 2007 19:03

When James H. Simons celebrated his 60th birthday he did things a bit differently than private equity king Stephen Schwarzman. Instead of throwinga lavish gala and hiring Rod Stewart to serenade his guests, Mr Simons hosted a geometry symposium that featured chats on such topics as the Chern-Simons Invariants.In fact, Mr Simons, president of $25bn (€18bn; ￡12.5bn) hedge fund group Renaissance Technologies, does just about everything a little differently. The bearded 69-year-old is a prize-winning mathematician and former code-breaking cryptologist who spends little time on the Manhattan social circuit. He hires almost no one with a Wall Street pedigree, instead populating his150-person group with PhDs in fields ranging from astrophysics to linguistics.ADVERTISEMENTIn social settings, friends say the grandfatherly Mr Simons occasionally turns up without socks and prefers to talk about science and maths rather than finance. But there is one thing the chain-smoking Mr Simons does share with others on Wall Street: the ability to make money. And he makes more of it, for himself and his investors, than just about anyone else.According to a survey out last week from Institutional Investor’s Alpha Magazine, Mr Simons took home $1.7bn last year, the biggest haul among hedgefund managers and about 31 times the $54m paid to Lloyd Blankfein of Goldman Sachs, the top-paid Wall Street chief executive. Forbes magazine hasestimated Mr Simons’ wealth at about $4bn.Mr Simons’ income is the result of big gains posted by Renaissance’s two main hedge funds. One of them, the $5.3bn Medallion, now consists only of MrSimons’ money and that of other Renaissance employees. But even when outside investors were paying Medallion’s legendary fees – 5 per cent of assets and 44 per cent of profits – they had little to complain about. Medallion has returned an average of 36 per cent per year, after fees, sinceits launch in 1989. It reportedly returned 44 per cent last year. That makes Mr Simons the most successful hedge fund manager of all time, ahead oflegendary investors including George Soros.Renaissance launched a new fund in 2005 targeting institutional investors and has so far gathered over $20bn on the way to what Mr Simons says could be as much as $100bn, which would make it the largest fund in history. Renaissance Institutional Equities Fund charges fees closer to the industry standard 2 per cent of assets and 20 per cent of profits. It is only up about 1 per cent so far this year, according to an investor, but gained about 20 per cent last year.How does Mr Simons do it? No one outside of Renaissance really knows. “Clearly it is an extraordinarily impressive firm with legions of brilliant people and computing power that exceeds most nations,” says Michael Rosen, a consultant at Angeles Investment Advisors, who has visited Renaissance twice but not yet recommended RIEF to clients. “The big issue for us is transparency and really understanding what they do ... Even if they were to explain their algorithms to me I’m not sure I’d understand them.”Even though RIEF is intended to be less volatile and more transparent than Medallion, Mr Simons has admitted that it, too, is really a black box. “Of course we can’t show the model or tell people how we calculate our forecasts. That would be like Warren Buffett telling the world what stocks he’s buying before he buys them,” he told Pension & Investments magazine late last year.Mr Simons is the king of the “quants”, quantitative investors who use complex models to come up with trading strategies. Renaissance has reportedly spent $600m on computers and other technology, much of it packed into the group’s 50-acre campus in East Setauket, about an hour from Manhattan. Mr Rosen describes the location as a cross between a university campus and the Pentagon, featuring a gym, a library, a tennis court and an auditorium that hosts academic lectures on topics with little connection to finance. On this campus, and at Renaissance’s office in Manhattan, Mr Simons and his army of PhD’s gather mountains of data on every conceivable security and futures contract and search for patterns, or “signals” that will tell them what is going to happen and when.That is where people such as the astronomers come in. They are expert at taking satellite images and eliminating “noise” to produce a clear picture. The astronomers apply similar techniques to help sift huge streams of market data to find clear signals. In the case of Medallion, the signals highlight anomalies that often last for just micro-seconds, requiring massive daily trading that can account for significant volume on global exchanges.With RIEF, Mr Simons and his staff spent years searching for long-term signals to create a far larger equities fund that would be less volatile andtrade less often, making it more appropriate for big institutions that prize steady, low double-digit returns.Mr Simons, the son of a shoe factory owner, earned his maths PhD at the University of California at Berkeley and then worked as a code breaker during Vietnam, his first professional experience picking up hidden signals.He was fired for making critical comments about the war. He taught at Harvard and the Massachusetts Institute of Technology before becoming chairman of the maths department at Stony Brook University on Long Island. Asuccessful amateur investor, Mr Simons left Stony Brook in 1978 to launch what would become Renaissance. He now spends spare time on philanthropic work, chiefly promoting maths and science teaching in public high schools through his Math for America foundation. Mr Simons and Marilyn, his wife, have a daughter with autism and are heavily involved in autism research. Mr Simons had two sons die young, one at 34 another at 23, and has made large bequests in their honour. He has two older children.Mr Simons continues his academic work. “I don’t know how he does all that he does. I don’t think he ever sleeps,” says Irwin Kra, who runs Math for America.Mr Simons donated $25m to Stony Brook to help build a geometry and physics centre. At the annual Stony Brook fundraising dinner, he employs his formidable talents as a master of ceremonies. “It’s pretty hard to keep those things from being boring,” says David Ebin, chair of the maths department and a long-time colleague of Mr Simons. “But he manages to do it.”Additional reporting by James Mackintosh