The Medallion Fund

Perhaps the biggest enigma on Wall Street is the Medallion Hedge Fund. This is the super-secret, super-successful hedge fund run by Jim Simons, a former math professor.
The fund is currently around $5 billion in size and it’s creamed the market over the last seventeen years. The fund has made over 30% a year net of fees. Those fees? Think 44% of profits and 5% of assets.
But what’s really odd is that almost nothing is known about the fund. It’s a black box. Simons goes out of his way to hire people not from Wall Street. About one-third of the fund’s staff has Ph.Ds. It’s all quant-based, and whatever those algorithms are, they work.
This is from Simons’ Wikipedia page:

Simons is said to be superstitious and slightly eccentric. His favorite number is 13. He is known to wear the same necktie throughout an entire year, as long as his hedge fund does not have a losing streak of any length. He has been known to show up at formal business meetings without socks.

(He’s a blogger at heart!)
Simons now wants to create a mega-fund that will manage $100 billion. If you’re interested, there are still open slots. The minimum is $20 million.
There’s an important question at hand: Can a fund be that large as still be successful? The academic research says no. In fact, open-end mutual funds haven’t been that large and successful. Fidelity Magellan started running into trouble when it reached that size. It’s now down to a wee $50 billion.
No hedge has ever gotten larger than about $22 billion. That’s the point where both Julian Robertson and George Soros started to get hit with losses. If any can be successful at $100 billion, Simons can.

Posted by on November 5th, 2005 at 4:25 pm


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