Jim Simons, the mathematician-investor who created what many in finance consider the world’s greatest moneymaking machine at his secretive firm, Renaissance Technologies, has died. He was 86.
He died today in New York City, according to his charitable foundation, which didn’t cite a cause.
In turning from academia to investing as he entered his 40s, Simons eschewed standard practices of money managers in favor of quantitative analysis — finding patterns in data that predicted price changes. His technique was so successful that he became known as the Quant King.
At Renaissance, located about 60 miles east of Manhattan in quiet East Setauket, New York, Simons avoided employing Wall Street veterans. Instead he sought out mathematicians and scientists, including astrophysicists and code breakers, who could ferret out usable investment information in the terabytes of data his firm sucked in each day on everything from sunspots to overseas weather.
Over more than three decades, his returns consistently trounced markets even as computer power got cheaper and competitors tried their best to mimic Renaissance’s success by building their own complex algorithms to run their funds.
“There are just a few individuals who have truly changed how we view the markets,” Theodore Aronson, founder of AJO Vista, a quantitative money management firm, told Bloomberg Markets magazine in 2008. “John Maynard Keynes is one of the few. Warren Buffett is one of the few. So is Jim Simons.”
A onetime code breaker for the US government, Simons refused to give specifics about how he produced more than four times the return of the S&P 500 Index in his most famous fund, Medallion. From 1988 through 2023, the fund generated an astounding average annual return of almost 40%, even after hefty fees, turning Simons and as many as three colleagues into billionaires.
He was worth an estimated $31.8 billion, making him the 49th-richest person in the world, according to the Bloomberg Billionaires Index.
Clients and insiders paid handsomely to entrust their funds to Simons. He eventually raised fees to 5% of assets and 44% of profits, among the industry’s highest. Believing that the algorithms the firm used to trade stocks, bonds and commodities wouldn’t work if Medallion got too large, he soon started limiting access to the fund.
In 1993, Simons stopped accepting new money from Medallion clients, and in 2005, he kicked out outsiders entirely, allowing only employees to invest. He returned profits every year, limiting the size of the fund to around $10 billion.
He opened more pedestrian funds for the general public. At times, the disparity in their performance was dramatic. In 2020, the Medallion fund gained 76% while the public funds racked up double-digit losses.
Company Trips
Simons’ talents extended to knowing how to inspire his often quirky employees — 300 in all — who came to Renaissance. The complicated problem of figuring out why markets rise and fall was one draw, as was the high pay and the sense of community he created.
“It’s an open atmosphere,” Simons said in a rare speech in 2010 at his alma mater, the Massachusetts Institute of Technology. “We make sure everyone knows what everyone else is doing, the sooner the better. That’s what stimulates people.”
He played the benevolent father figure, organizing company trips to Bermuda, the Dominican Republic, Florida and Vermont — and encouraged employees to bring their families.
Company lore is that on one of the firm’s ski trips, Simons, a lifetime smoker, bought an insurance policy for a local restaurant so he wouldn’t have to forgo his beloved Merits.
Many competitors tried and failed to replicate the Medallion fund’s secret sauce. After Bernard Madoff’s money-making success was exposed as a Ponzi scheme in 2008, the US Securities and Exchange Commission came calling at Renaissance, Simons said at another MIT gathering in 2019.
“They did study us,” he said. “Of course, they didn’t find anything.”
Political Divide
Simons stepped down as chief executive officer in 2010 and as chairman in 2021. Two of his key early hires — Peter Brown and Robert Mercer, mathematicians and pioneers in speech recognition and machine translation who were lured away from IBM’s renowned Thomas J. Watson Research Center — replaced him as co-CEOs.
The money-making prowess of Renaissance made it a honey pot for politicians from both major political parties.
Simons and his wife, Marilyn, were leading donors to the Democratic Party, giving more than $109 million to candidates — including Hillary Clinton and Joe Biden — and supporting committees since 2015, according to OpenSecrets.
One of Simons’ first hires, Henry Laufer, a fellow multibillionaire, also became a major supporter to Democratic committee and causes. But Mercer, along with his daughter Rebekah, became major contributors to the Republican Party, in particular to Donald Trump in 2016.
Around 2020, Renaissance expanded the group of directors who would eventually succeed Simons in overseeing the firm and promoted his son, Nathaniel Simons, to co-chairman, a move positioning him to eventually take over.
Math Whiz
James Harris Simons was born on April 25, 1938, in the Boston suburb of Brookline, the only child of Matthew Simons and the former Marcia Kantor. His father worked in the film industry as a New England sales representative for 20th Century Fox. Later he helped manage his father-in-law’s shoe factory.
Precocious at math from age 3, Simons completed Newton High School in three years. He became a bar mitzvah at 13 but said he had little interest in Judaism after that.
At MIT, he earned a bachelor’s degree in mathematics in 1958 after just three years of study. While pursuing his Ph.D. at the University of California at Berkeley, he got his first taste of investing, driving to a Merrill Lynch brokerage in San Francisco to trade soybean futures. He also married his first wife, the former Barbara Bluestein, with whom he would have three children: Nathaniel, Liz and Paul, who died in a bicycling accident in 1996.
That marriage ended in divorce. With his second wife, the former Marilyn Hawrys, he had two children — Nick, who died in a swimming accident in 2003, and Audrey.
Simons returned to MIT in 1961 to begin his teaching career, sensing that his future path was decided. “I remember sitting in the library one day, saying, ‘Well, I guess I’ll become an assistant professor and then an associate professor and then a professor and then I’ll go through life that way and then die,’” he recalled in a 2020 oral history interview with the American Institute of Physics. “And it made me think maybe there are other things in the world.”
Cold War Code-Breaking
In 1964, after teaching at Harvard University, Simons moved to Princeton, New Jersey, to take a high-paying and highly classified job at the Institute for Defense Analyses. The nonprofit research organization was hiring mathematicians to support the US National Security Agency in cracking codes and ciphers used by the Soviet Union.
The work introduced Simons to the possibilities in creating algorithms for computers. IDA employees were permitted to spend half their time on personal work, and Simons devoted some of his to predicting short-term moves in the stock market.
Simons worked there for more than three years before losing his job for publicly challenging the IDA’s president, Army General Maxwell D. Taylor, over the war in Vietnam.
In a piece for the New York Times Magazine, Taylor had insisted that the US was winning a war worth fighting. Simons, responding with a letter to the editor, spelled out his belief that “any political gains stemming from a military victory cannot possibly be offset by the enormous economic, intellectual and moral investment which we are continuing to place in this venture.”
Simons was hired to chair the math department at the State University of New York at Stony Brook. With Shiing-Shen Chern, he created the Chern–Simons theory, presented in a 1974 paper. The theory provides the tools, known as invariants, that mathematicians use to distinguish among certain curved spaces — the kinds of distortions of ordinary space that exist according to Albert Einstein’s general theory of relativity.
In 1976, he was awarded the Oswald Veblen Prize in Geometry by the American Mathematical Society.
Traded Commodities
While chairing the math department, and using the connections he had made through his work in cryptography, Simons dabbled once again in trading.
Initially he bought and sold commodities, making his bets based on fundamentals such as supply and demand. He found the experience gut-wrenching, so he turned to his network of cryptographers and mathematicians for help looking at patterns: Elwyn Berlekamp and Leonard Baum, former colleagues from IDA, plus Laufer and James Ax, a mathematician whom he had personally recruited to leave Cornell University and join the Stony Brook faculty.
“Maybe there were some ways to predict prices statistically,” Simons said in a 2015 interview with Numberphile. “Gradually we built models.”
In 1978 he left academia for good to try his hand at managing money.
He founded Monemetrics, a precursor to Renaissance, in Setauket, just east of Stony Brook. He turned to an old friend and fellow code cracker from the IDA, Leonard Baum, whose mathematical models could be used to trade currencies. He brought in Ax, his former Stony Brook colleague, to oversee Baum’s work.
Ax concluded that the models worked not only with the currencies Baum had written them for, but for any commodity future. Simons set up Ax with his own trading account, Axcom Ltd., which eventually gave birth to Medallion.
Medallion’s first two years were mixed, but in 1990, after focusing exclusively on shorter-term trading, Medallion chalked up a 56% return, net of fees, and performance never faltered after that.
Simons pledged to donate the majority of his wealth to charities. The New York-based Simons Foundation, founded with Marilyn in 1994, supports research in mathematics, science and autism. Simons also founded Math for America, which extends fellowships to math and science teachers in New York City public schools. Last year he donated $500 million to Stony Brook University’s endowment, one of the largest gifts to higher education in US history.
Of his own transition from science to finance, Simons once observed, “One can predict the course of a comet more easily than one can predict the course of Citigroup’s stock. The attractiveness, of course, is that you can make more money successfully predicting a stock than you can a comet.”
Patrick Oster and Katherine Burton, Bloomberg , 2024-05-10 20:01:01
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