[Photo:  Jim Simons, By Gert-Martin Greuel / Wikimedia Commons]

According to BloombergView columnist Matt Levine, the big problem with Renaissance Technologies, the quant investment manager founded by Jim Simons, is that its Medallion fund makes too much money:

Simons determined, almost from the beginning, that the fund’s overall size can affect performance: Too much money destroys returns. Renaissance currently caps Medallion’s assets between $9 billion and $10 billion, about twice what it was a decade ago. Profits get distributed every 6 months.

Medallion was up 21% for the half of 2016. It was up 35.6% last year, 39.2% the year before, 46.9% the year before that. Its last down year was 1989. Even in 2007, when the fund had a rough few days in August, it still ended the year up 85.9%.

It has returned about 40% per year, on average, net of fees, since it started in 1988. But it can't compound at that rate. It keeps handing money back to investors, because it has too much. If Renaissance had started 2007 with $5 billion, and had had the actual performance it has had over the last decade, but without returning money to investors, it would have $214 billion now. That's too big. In actual fact, it keeps handing back the money, and "has produced about $55 billion in profit over the last 28 years."

Renaissance co-head Peter Brown says that his firm seeks out signals – lots and lots of signals. And not the ones that make a lot of sense and are very strong, because they would have been traded out long ago. No, instead:

            “What we do is look for lots and lots, and we have, I don’t know, like 90 Ph.D.s in math and physics, who just sit there looking for these signals all day long. We have 10,000 processors in there that are constantly grinding away looking for signals.”

What they want are signals that don't make much sense, that aren't very strong, that you can't grasp intuitively and then go out and implement. They want stuff that looks like noise, but that in the hands of a powerful enough computer with cheap enough implementation costs, can make a little bit of money. Over and over again.

And so Renaissance doesn't really hire people because they understand investing. "A résumé with Wall Street experience or even a finance background was a firm pass" early on at Renaissance, and it's full mostly of speech-recognition specialists and astrophysicists and string theorists, scientists who "excel at screening 'noisy' data." It's a pattern-recognition firm, a data-processing firm, a firm for finding correlations and signals and using those signals to make frequent, tentative, marginally profitable decisions. Which add up to 40 percent annual returns, year after year.