Renaissance Technologies (Audio)

1. BGBen Gilbert0:00

   I always used to misspell Renaissance as I was typing it out. I'd R-E-N, and then I would sort of, like, not really know what came from there, but I learned a mnemonic to make sure I get it right.

2. DRDavid Rosenthal0:10

   Oh! I thought you were gonna say you've typed it so many times now over the past month.

3. BGBen Gilbert0:15

   Well, there's that, too, but you ready for this? You can't spell Renaissance without AI.

4. DRDavid Rosenthal0:20

   Oh, [laughing]

5. BGBen Gilbert0:22

   [laughing]

6. DRDavid Rosenthal0:24

   Touché, touché.

7. BGBen Gilbert0:25

   Uh... All right, let's do it.

8. SPSpeaker0:28

   Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Hmm. Is it you? Is it you? Is it you? Sit me down, say it straight, another story on the way. Who got the truth?

9. BGBen Gilbert0:45

   Welcome to season fourteen, episode three of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

10. DRDavid Rosenthal0:53

    I'm David Rosenthal.

11. BGBen Gilbert0:54

    And we are your hosts. They say, David, that as an investor, you can't beat the market or time the market, that you're better off indexing and dollar cost averaging rather than trying to be an active stock picker. They say there's no persistence of returns for hedge funds, that this year's big winner can be next year's big loser, and that nobody gets huge outperformance without taking huge risk.

12. DRDavid Rosenthal1:20

    When I was in college, I actually took an economics class with Burton Malkiel, who, of course, you know, was involved in starting Vanguard and is a big proponent of all that, and that is what I learned, Ben.

13. BGBen Gilbert1:30

    Well, David, it turns out they were wrong. Today, listeners, we tell the story of the best-performing investment firm in history, Renaissance Technologies, or RenTech. Their thirty-year track record, managing billions of dollars, has better returns than anyone you have ever heard of, including Berkshire Hathaway, Bridgewater, George Soros, Peter Lynch, or anyone else. So why haven't you heard of them? Or if you have, why don't you know much about them? Well, their eye-popping performance is matched only by their extreme secrecy, and they are unusual in almost every way. Their founder, Jim Simons, worked for the US government in the Cold War as a codebreaker before starting Renaissance. None of the founders or early employees had any investing background, and they built the entire thing by hiring PhD physicists, astronomers, and speech recognition researchers. They're located in the middle of nowhere in a tiny town on Long Island. They don't pay attention to revenues, profits, or even who the CEOs are of the companies [chuckles] that they invest in. And at any given time, they probably couldn't even tell you what actual stocks they own. Now, you may be thinking, "Okay, great, I just learned about this insane fund with unbelievable performance," and to be specific, listeners, that's sixty-six percent annual returns before fees, "and, you know, well, I want to invest!" Well, you can't. To add to everything else that I just said, RenTech's flagship Medallion Fund doesn't take any outside investors. The partners of the firm have become so wealthy from the billions that the fund has generated, that the only investors they allow in are themselves.

14. DRDavid Rosenthal3:08

    Oh, we are going to talk a lot about that towards the end of the episode, 'cause I think it's kind of the key to the whole thing.

15. BGBen Gilbert3:15

    Ooh, cliffhanger, David. I'm excited. So what exactly does Renaissance do? Why does it work, and how did it evolve to be the way it is today? And while the resources that are out there are scarce, because, for one, employees sign a lifetime non-disclosure agreement, David and I are going to take you through everything we've learned about the firm from our research, dating all the way back before Jim Simons started as a math professor, to understand it all. This episode was selected by our Acquired limited partners, and to be honest, I didn't think enough people knew what RenTech was to pick it, but when we put it out for a vote, the people have spoken. So if you want to become a limited partner and pick one episode each season and join the quarterly Zoom calls with us, you can join at acquired.fm/lp. If you wanna know every time a new episode drops, sign up at acquired.fm/email. These emails also contain hints at what the next episode will be and follow-up facts from previous episodes. For example, we had a listener, Nicholas Cullen, email us this time, who found the actual document with the bylaws of Hermès's controlling family shareholder, H fifty-one, which we linked to in this most recent email. Come talk about this episode with us after listening at acquired.fm/slack. If you want more from David and I, check out ACQ2. Our most recent episode was with Lotte Bjerre Knudsen, who led the team that created the first GLP-1s at Novo Nordisk, so awesome follow-up to the Novo episode if you liked that one. Before we dive in, we want to briefly share our presenting sponsor this season is J.P. Morgan, specifically their incredible payments business.

16. DRDavid Rosenthal4:51

    Yeah, just like how we say every company has a story, every company's story is powered by payments, and J.P. Morgan Payments is a part of so many companies that we talk about on Acquired. It's not just the Fortune five hundred, too. They're also helping companies grow from seed to IPO and beyond.

17. BGBen Gilbert5:06

    Yep. So with that, the show is not investment advice. David and I may have investments in the companies we discuss or perhaps wish we did, and this show is for informational and entertainment purposes only. David, where do we start our story today?

18. DRDavid Rosenthal5:20

    Ah, well, we start in 1938 in Newton, Massachusetts, which is a fairly wealthy suburb just outside of Boston, where one James Simons is born. And both of Jim's parents were very, very smart, especially his mother, Marsha. His dad was a salesman for 20th Century Fox, the movie company. His job was he went around to theaters in the Northeast and sold packages of movies to them.

19. BGBen Gilbert5:48

    Super cool.

20. DRDavid Rosenthal5:49

    By the way, we know all this because we have to thank Greg Zuckerman, author of The Man Who Solved the Market, which is the only book out there that is solely dedicated to RenTech and Jim Simons, and we actually got to talk to Greg in our research. He helped us out a bunch. Thank you, Greg.

21. BGBen Gilbert6:03

    And helped fact-check a few of our assumptions of what happened after the book came out.

22. DRDavid Rosenthal6:07

    ... So that was Jim's parents, but really a major influence on him growing up was his grandfather, Marsha's dad. There's already kind of echoes of the Bezos story here with the grandfather, the mother's father, and spending a bunch of time with him, and rubbing off on young Jeff or young Jim, in this case. And Bezos, of course, would get his start in his career at D. E. Shaw.

23. BGBen Gilbert6:32

    A quant fund coming up at the same time as RenTech.

24. DRDavid Rosenthal6:35

    But back to Jim here in the 1940s. His grandfather, Peter, owned a shoe factory that made women's dress shoes. Jim spends a ton of time there growing up at the factory. So Jim's grandfather, Peter, was quite the character. He was a Russian immigrant, and he's kind of, like, still more Russia than Boston at this point in time. [laughs]

25. BGBen Gilbert6:59

    [laughs]

26. DRDavid Rosenthal6:59

    As Greg puts it in the book, Peter reveled in telling Jim and his cousins stories of the motherland involving wolves, women, caviar, and vodka. And he teaches young Jim, when he's a child here in the factory, to say Russian phrases like, "Give me a cigarette," and, "Kiss my ass."

27. BGBen Gilbert7:17

    Which I think he probably would say that thousands of times the rest of his life. [laughs]

28. DRDavid Rosenthal7:20

    I think so. If you watch interviews with Jim, his hands are always twitching because he has chain-smoked his entire life, probably going back to, like, age ten in the factory.

29. BGBen Gilbert7:31

    Three packs of Merits a day.

30. DRDavid Rosenthal7:33

    Unbelievable.

Episode duration: 3:10:44