Jim Simons: What the Public Record Shows

Jim Simons was a mathematician who left a university department to start a trading firm. Renaissance Technologies has never published the returns of its Medallion fund.

Two sources carry figures that can be traced. One is a public staff report from a US Senate subcommittee, which puts $34 billion of trading profits at his firm. The other is press reporting of a 2021 tax settlement that ran to as much as $7 billion.

A research mathematician who headed a university department.

Simons took his undergraduate degree in mathematics at the Massachusetts Institute of Technology in 1958, then a doctorate at the University of California, Berkeley, in 1961, aged 23. He worked as a code breaker for the National Security Agency, then became head of the mathematics department at Stony Brook University.

His work with Shiing-Shen Chern produced the Chern-Simons functional. It influenced Edward Witten's work on knot theory.

Chart 1 sets out the sequence. He left academia in 1978 to start what became Renaissance Technologies, in a strip mall near the university.

Because Renaissance has never published one.

Medallion is the firm's flagship fund. Its performance has never been filed or released. Figures for its returns appear in books and press accounts, none of which cites a document a reader can open.

A figure is printed here when a named source can be opened, or when it can be attributed to reporting that says what the reporter saw. The circulating return figures meet neither test, so this guide prints none of them.

The $34 billion below is a profit figure in dollars. It cannot be turned into a percentage return, because the capital behind it is not given.

$34 billion of trading profits, routed through options sold by two banks.

In July 2014 the US Senate Permanent Subcommittee on Investigations published a staff report titled Abuse of Structured Financial Products (Basket Options). A staff report is the work of committee staff. It is not a court ruling.

A basket option is an option whose payoff tracks a basket of shares, in this case the fund's own trading portfolio. Deutsche Bank and Barclays each sold a product of this kind to Renaissance. On the report's account, the structures let hedge funds report short-term trading gains as long-term capital gains, which carry a lower tax rate. A gain counts as long-term once the asset has been held for more than a year.

Source: US Senate Permanent Subcommittee on Investigations; YX Insights

The Deutsche Bank product, the Managed Account Product Structure (MAPS), produced profits for the firm of about $17 billion. The Barclays product, COLT, produced about $18.5 billion. Those are gross figures across every option each bank sold to Renaissance.

The report's third finding puts the trading profits at $34 billion between 1999 and 2013. That figure is measured differently. It covers only the 60 contracts held for more than a year, net of what the options cost to buy. The subcommittee put the estimated tax avoided at more than $6 billion.

Chart 2 sets the two product figures side by side. Of the 79 option contracts the two banks sold to Renaissance, the report counts 60 held for more than a year.

As much as twenty to one.

Margin rules limit a normal account to two to one. These structures permitted as much as twenty to one, which is $20 of borrowed money for every $1 of the fund's own.

Chart 3 sets those two limits side by side.

With a settlement reported at as much as $7 billion.

In September 2021 the Wall Street Journal reported that Renaissance executives had agreed to settle a tax dispute with the Internal Revenue Service (IRS). Reuters reviewed a letter to investors from the firm's chief executive, Peter Brown, setting out the terms. The trades covered were Medallion's, from 2005 to 2015. Those years do not match the report's window of 1999 to 2013.

On the terms as reported, the seven people who sat on the firm's board in those years agreed to pay tax, interest and penalties, their spouses included. Investors were to pay additional tax and interest without penalties. Simons agreed to a further payment of $670 million to the IRS.

The letter is not a public document, so this account rests on the reporting. A settlement ends a dispute without a ruling on it.

A foundation and two research institutes.

Simons founded the Simons Foundation in 1994 with his wife Marilyn. The Flatiron Institute followed a proposal by Ingrid Daubechies. At the Institute for Advanced Study he was a trustee for seventeen years, Vice Chair from 2010 to 2018 and chair of its investment committee for fourteen years. He died on 10 May 2024, aged 86.

The record on him is lopsided. The mathematics is published and citable. The only profit figures that can be traced to a source sit in a Senate staff report and in press reports of a settlement with the IRS. Medallion's returns are not published at all.

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A mathematician who became a trader. He took a doctorate at Berkeley in 1961 at the age of 23 and worked as a code breaker for the National Security Agency. He headed the mathematics department at Stony Brook University, then left academia in 1978 to start what became Renaissance Technologies. He died on 10 May 2024, aged 86.

Renaissance has never published them. The fund's performance has never been filed or released, so the figures in circulation cannot be traced to a document a reader can open. This guide prints none of them for that reason.

Basket options, which are options whose payoff tracks a basket of shares. A 2014 staff report from the US Senate Permanent Subcommittee on Investigations set out how products sold by Deutsche Bank and Barclays let trading gains be reported as long-term capital gains. Its third finding puts Renaissance's trading profits through them at $34 billion between 1999 and 2013.

As much as $7 billion, according to reports in September 2021. The settlement covered Medallion trades from 2005 to 2015. The seven people on the firm's board during those years, with their spouses, agreed to pay tax, interest and penalties. Simons agreed to a further $670 million to the Internal Revenue Service. A settlement ends a dispute without a ruling on it.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.