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Two funds at quant-trading pioneer suffered worst months ever in October

Unprecedented turbulence at a pair of quantitative hedge funds managed by the industry pioneer Renaissance Technologies is causing the firm to consider adjusting its trading models, according to people familiar with the matter.

The Long Island-based firm, founded by the mathematician Jim Simons, uses machine learning and predetermined algorithms to bet on and against thousands of stocks at any given time.

Renaissance told clients it is weighing an adjustment in its trading models after the two funds, which together manage nearly $20 billion, suffered their worst months ever in October before surging in November. Renaissance’s investing algorithms weren’t prepared for recent, unusual moves in the shares of some small companies, including so-called meme stocks, people familiar with the matter said.

The famously secretive firm is now examining ways to reduce the volatility of these funds, the people said.

Renaissance’s deliberations show how even successful firms are grappling with a stock market that is at record levels, but has seen some shares endure roller-coaster rides.

Renaissance usually doesn’t react to short-term market moves and might elect not to make any changes. Even considering tweaks is a departure. After a losing streak about five years ago, Renaissance told clients that its models were time-tested and that it wouldn’t modify them in response to short periods of underperformance, a person familiar with the matter said.

One of the two funds, the Renaissance Institutional Equities Fund, lost about 14% in October, before gaining 12.7% in November to put it up 2.3% so far this year. The other, the Renaissance Institutional Diversified Alpha Fund, was up 1.3% so far this year through November. The returns were earlier reported by Institutional Investor.

By comparison, an index of stock-picking quant funds compiled by the research firm PivotalPath is up 6.3% this year through November and was down 1.6% in October.

The two Renaissance funds, known as RIEF and RIDA, are the only Renaissance investment vehicles available to outside investors. Its flagship Medallion fund, one of the industry’s top-performing funds for decades, pushed clients out years ago and primarily manages money of the firm’s own employees.

Medallion climbed around 20% this year through November, topping the overall market, much as it has for decades, people familiar with the matter said. The S&P 500 gained 17.8% in the same period, including dividends. Medallion’s results come after subtracting the fund’s notoriously high investor fees, which amount to 5% of assets and 36% of any gains.

Still, the gains are lower than what they had been for much of Medallion’s history. Between 1988 and 2018, the hedge fund produced average annual returns of 39% after fees, topping nearly every other hedge fund.

Medallion, which manages more than $10 billion, holds more cash than usual, a person familiar with the matter said. That reduces its risk but is weighing on returns.

Renaissance executives remain satisfied with Medallion’s results and aren’t contemplating any changes, even if the gains don’t quite measure up to past performance, people familiar with the matter said.

While Renaissance executives like to say that Medallion holds investments for “seconds to seasons”—often just days at a time—RIEF and RIDA make longer-term trades.

Quant funds including RIEF and RIDA were shorting a number of meme stocks that rallied in September and October, fueling short squeezes and inflicting pain, according to traders. The funds’ losses were concentrated in small information-technology, communications and industrial stocks, one of the people familiar with the matter said.

Meme stocks widely held by quants include the digital marketing company QMMM Holdings and Beyond Meat, according to a banker who deals with hedge funds.

QMMM soared from $5 at the end of August to an intraday high of over $300 in September before trading was halted by the Securities and Exchange Commission for potential manipulation. Shares in Beyond Meat zigzagged from under $2 at the end of September to a low of 52 cents on Oct. 16 to over $3 on Oct. 21.

Despite the bumpy ride for these kinds of stocks, the overall market hasn’t been volatile. The Cboe Volatility Index, also known as the VIX, has averaged 19.19 this year compared with its long-term average going back to 1990 of 19.47.

That makes it harder for Medallion, which often does best in hectic markets; its trading models often reduce trading and build cash when stocks are placid.

Simons died last year. Renaissance since 2024 has been led by the longtime executive Peter Brown and David Lippe. Brown, 70 years old, previously ran the firm with Bob Mercer, after Simons became chairman. Brown is expected to hand the baton to Lippe eventually, according to people familiar with the matter.