It makes for good dramatic reading, but not likely to be 100% accurate.
So, I haven't read the book, but here they argue one takeaway is that Renaissance team had no previous financial knowledge, hence avoiding potential pitfalls.
What do you guys think of this "no prior business knowledge turned into an strength" argument?
It's an interesting analogy, but evaluating the results too subjective - "chacun a son gout..."Say the 3*** veteran chef makes mayonnaise, taking benefit of skills (s)he has developed during 4 decades or so, and based on an ancestral recipe embedding centuries of cuisine knowledge and know-how. Then, the undergrad in chemistry who has never even cooked makes a bet with friends and decides he will make the best mayonnaise ever using only her/his chemistry class 101 knowledge.
It makes for good dramatic reading, but not likely to be 100% accurate.
So, I haven't read the book, but here they argue one takeaway is that Renaissance team had no previous financial knowledge, hence avoiding potential pitfalls.
What do you guys think of this "no prior business knowledge turned into an strength" argument?
Would you want to trade commodities, for example, through a team that had no knowledge of them?
Lots of arcana there, as you know.
I found daveangel's comments on the subject interesting, especially around the relative performance of funds open and closed to outsider investors.
It feels like they found a leak in the plumbing of the market, and figured out where to put the bucket to catch the money. Then, it's just a matter of concocting a cover story, and making millions of trades a year seems like a good one. I actually doubt that the "alpha" source has anything to do with what most of us would think of as quant investing. But, needless to say, I could be wrong.
How do these high frequency guys with multiple subfunds with mixed internal/external ownership participation and who wantIt feels like they found a leak in the plumbing of the market, and figured out where to put the bucket to catch the money. Then, it's just a matter of concocting a cover story, and making millions of trades a year seems like a good one. I actually doubt that the "alpha" source has anything to do with what most of us would think of as quant investing. But, needless to say, I could be wrong.
That's very interesting. Indeed, five or ten years ago, I thought that Rentech was probably just a very early high frequency trader and they were the beneficiary of the early apparent windfall profits in that space. Unfortunately, nothing later seemed to confirm this, including the book being discussed here. But, I like your idea that the "statistical arbitrage" story is a smokescreen for something else.
Probably not a major issue, as the external fund wasn't supposed to resemble the internal one -- see the attached 2 page excerpt.
How do these high frequency guys with multiple subfunds with mixed internal/external ownership participation and who want
to remain as secretive about their portfolio composition as possible, avoid the obvious
conflict of interest concerns? Would an auditor provide any assurances of best execution throughout all the subfinds?
Thanks! Despite being in this thread, the comment wasn't particularly aimed at Rentech/Simon's funds.Probably not a major issue, as the external fund wasn't supposed to resemble the internal one -- see the attached 2 page excerpt.
How do these high frequency guys with multiple subfunds with mixed internal/external ownership participation and who want
to remain as secretive about their portfolio composition as possible, avoid the obvious
conflict of interest concerns? Would an auditor provide any assurances of best execution throughout all the subfinds?
On the perhaps rare occasion where both funds wanted to buy the same security at the same time, I suppose some proportional allocation rule could be enforced. The auditor might check, and so might the SEC on occasional inspections, to see if the stated policy was being followed. By the time any outside investor saw a portfolio snapshot of the RIEF fund (if ever), it sounds to me from the book that any putative same ticker purchase would be long gone from the Medallion Fund.