The Man Who Solved the Market

There’s an excellent new book out about Jim Simons and Renaissance Technologies, The Man Who Solved the Market, by Gregory Zuckerman. I recommend it enthusiastically to anyone interested in the story of how a geometer ended up being worth \$23 billion. Lots of other mathematicians and physicists have also been involved in this over the years.

I first heard about Simons and his investment operation when I was a postdoc at Stony Brook in the mid-eighties, and have heard bits and pieces of this story from various sources over the years, sometimes clearly distorted in the retelling. It’s very satisfying to finally get a reliable explanation of what Simons and those working with him have been up to all this time. For those with more interest than me in the details of quant strategies, the book provides far and away the most information available about how Simons and RenTech have been making so much money so successfully. The author managed to get some degree of cooperation from Simons, and was thus able to get a lot of those involved with him to talk. As a result, while this isn’t an “authorized” biography, it’s written from a point of view rather sympathetic to Simons.

One question that keeps coming up in the book is that of motivation. Why did Simons abandon a highly successful career doing research mathematics in order to focus on making as much money as possible? Part of the answer is that, from the beginning, Simons always had one foot out of the research math world, playing poker and trading commodities even when he was a graduate student working with Chern at Berkeley. Later, while employed at the IDA in Princeton, he spent time working not just on government projects but on the mathematical analysis of stock market trading strategies. While I’ve often heard the story of how he was fired from IDA after publicly criticizing the Vietnam War, less well known is that a big problem was that he was quoted in Newsweek saying he planned to work on his own projects, not government ones, until the war was over.

Unfortunately, the book has very little to say about a question I’m fascinated by: what does Simons intend to do with the \$23 billion (and counting, the RenTech Medallion Fund that he has a large piece of continues to be an incredible money-making machine)? There’s very little in the book about his philanthropic activities, the most visible of which are at the Simons Foundation, which now has assets of nearly \$3 billion with amounts of the order of \$300 million/year coming in as income and going out as research funding. I think that on the whole Simons had made excellent choices with the math and physics that he has decided to fund, from the Simons Center for Geometry and Physics at Stony Brook to a wide array of programs funded by his foundation.

A question that keeps reappearing throughout the book is that of the social significance of RenTech. It’s a rather pure test case for the moral question about quant investing: would the world be better off without it? In the case of the main money-maker, their Medallion fund, it’s hard to argue that the short-term investment strategies they use provide important market liquidity. The fund is closed to outside investors, and makes money purely personally for those involved with RenTech, not for institutions like pension funds. So, the social impact of RenTech will come down to that of what Simons and a small number of other mathematicians, physicists and computer scientists decide to do with the trading profits (calculated by Zuckerman at over \$100 billion so far).

Simons himself has engaged in some impressive philanthropy, but one perhaps should weigh that against the effects of the money spent by Robert Mercer, the co-CEO he left the company to (Zuckerman discusses Mercer in detail). Mercer and his daughter have a lot of responsibility for some of the most destructive recent attacks on US democracy (e.g. Breitbart and the Cambridge Analytica 2016 election story). In the historical evaluation of whether the world would have been better off with or without RenTech, the fact that RenTech money may have been a determining factor in bringing Trump and those around him to power is going to weigh heavily on one side.

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13 Responses to The Man Who Solved the Market

  1. luysii says:

    There is also a fair amount about Simons in “The Physics of Wall Street” by physicist James Owen Weatherall, along with much more about quants and the street. Weatherall makes the statement that Renaissance Technologies is the world’s best physics and math department.

  2. Peter Woit says:

    luysii,
    I don’t know about “best” physics and math department, but it’s certainly the wealthiest…

  3. Keith McClary says:

    “motivation”

    Oligarchs usually want to establish a dynasty (eg. Trump, Bushs, Rockefellers, Kennedys). Does Simons have kids?

  4. Peter Woit says:

    Keith McClary,
    Thinking a bit more about the book, it seems very likely that Zuckerman was operating under some sort of agreement with Simons which involved him promising to stick to RenTech and say little to nothing about the Simons children or his current activities beyond the Simons Foundation. The only real mention in the book of the children is that Zuckerman does discuss the quite tragic stories of the accidental deaths of two of his sons.

    What’s not at all discussed in the book is that Simons has three living children, two daughters and a son. One daughter (Liz Simons) runs the Heising-Simons Foundation with her husband, Mark Heising. In 2017 this had assets of \$500 million, in 2018 gave away \$100 million. His son (Nathaniel Simons) with his wife run the Sea Change Foundation, focused on climate change, which supposedly has given away upwards of \$500 million.

    Also not discussed at all in the book is what must be a huge operation investing Simons’ assets (I doubt he’s putting them in a mutual fund…). This includes at least his family office, Euclidean Capital, and another investment group, Medley Partners.

    I also hadn’t noticed that Zuckerman doesn’t mention at all this story, which came out two years ago:
    https://www.theguardian.com/news/2017/nov/07/democratic-donor-james-simons-private-wealth-fund-tax-haven-paradise-papers
    Based on leaked documents, this described an offshore trust with \$8 billion back in 2010, as well as giving a lot of other details about Simons’ assets.

    This raises the question of the significance of the one number Zuckerman gives about Simons’ current wealth (\$23 billion). It’s quite possible this doesn’t include funds in trusts for his children or assets of Foundations he controls, so the size of assets controlled by him and his family may be much larger than this. Possibly his long-term plan is to leave his wealth to philanthropic foundations controlled by his children.

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  6. Paul Blann says:

    Following your recommendation I read the book and was somewhat disappointed. It’s principal subject is the history of a small group of people who use quantitative methods for exploiting the stock market and other financial instruments. Around this are painted a number of portraits of the key characters starting with Simons, but the cast is large. Despite the hagiographic treatment in the book these people are, in the main, a pretty unpleasant lot, mostly driven by an obsessive desire to acquire huge ampounts of wealth. They may well be mathematically adept (and in other subjects as well), but to a man (because they are virtually all men) they lack humanity. I was hoping to get more detail on the techniques used and how they developed over time. Alas, the writer is a journalist and despite doing a reasonable job at the history, was probably not able to expound on the science. I initially thought that the lack of depth in the characters was down to the writer – by the time I had finished I concluded that it was because many of the cast were rather one dimensional.

    I would say that if your interest is in how financial markets work and the people who work in them, then this could well be of interest. If you are interested in mathematicians in a real world environment I’m afraid this book will not shed much light.

  7. Peter Woit says:

    Paul Blann,

    Thanks. Your take on the book may be that of many readers, mine was colored by having a lot of interest, knowing a bit about many of the characters involved and having been curious to know more for a long time. It’s true that on the whole they don’t seem to be particularly interesting or pleasant people. The selection effect is for those who want to devote their lives to making as much money as possible by identifying obscure signals in a time series.

    Zuckerman doesn’t give a lot of detail about exactly what Simons and his associates have been doing, but there’s a lot more here than elsewhere. I would suspect the lack of detail is mainly due to the fact that those involved were only willing (or allowed) to discuss these trading strategies in generalities.

  8. Anonymous says:

    On the note of character, I found it disturbing that Simons would smoke during talks at the Simons Center (and I’m sure in other indoor environments) during the few times I saw him there. It gave off the vibe of “I’m so rich, I can break the rules and no one’s going to say anything”.

  9. Peter Woit says:

    Anonymous,
    The book contains more than a few stories about his smoking. One of them is that Edward Thorp wouldn’t meet with him because he had heard he smoked in his office and meetings.

  10. Art says:

    Question about arXiv: Besides Cornell, arXiv “gratefully acknowledge support from the Simons Foundation and member institutions” on their homepage. Awhile ago, however, arXiv (briefly) solicited donations. I chuckled and moved on, but continue to wonder about the backstory to that episode.

  11. Peter Woit says:

    Art,
    Simons, mainly through the Simons Foundation, pays for a wide variety of things helpful to math and physics research, the arXiv contribution is just one.

    It seems that the arXiv is still asking for donations, see
    https://arxiv.org/about/donate

    One problem with having gazillionaires fund such things is that those with more modest resources, e.g. mere millionaires, start to feel there’s not much point to donating, best to leave science philanthropy to our tech and financial overlords.

  12. Chris Oakley says:

    The notion that professional investors in capital markets are doing the world a service by “providing liquidity to the market” always makes me smile. Yes, they are, in the same way that professional poker players in Las Vegas provide a service to the tourists. These are the people who ensure that dumb investors like you and me get as little return on our investments as possible because they will have got there first. Still, I should not complain, as working for investment banks for 15 years is what paid for this house. I merely want to make the point that the notion that Jim Simons “launched the quant revolution” is a bit ridiculous. The idea of investment based on data-driven quantitative models occurred to a lot of people, including a number of companies in London who interviewed me in the late 1980s/early 1990s. Most of them are still going strong, but naturally they are very secretive, as I am sure was Jim Simons in the early days, so if one had to say anything along these lines it would be that each one of them separately “launched the quant revolution”.

  13. random reader says:

    A less known piece of the story is that in addition to Simons’ philanthropic outreach to scientists, RenTec has inreach that brings scientists and mathematicians to the firm as hired consultants. David Donoho was visiting Rentec when compressed sensing was the next big thing, and Cumrun Vafa has been there. It would be interesting to know who else has moonlighted at Renaissance.

    re: the 3 living children, it was reported that the younger daughter is autistic, and that as a result Simons has donated huge sums of money to research on the genetics of autism. Simons’ surviving son has worked at Rentec in addition to being a philanthropist.

    > “The selection effect is for those who want to devote their lives to making as much money as possible by identifying obscure signals in a time series.”

    This is a bit unfair even if technically true as a description of many jobs at RenTec. My understanding is that Simons set up the work culture of the firm based on the places he used to work at, IDA and academic research. As a result the employees seem to have a not insubstantial freedom to pursue their own projects and interests, though I guess (as at Google and other places with a similar approach) the idea is in part that a lot of those projects will end up making money for the company. From what I’ve seen of employees’ postings on social media such as MathOverflow, they seem to maintain their interest in their areas of scientific expertise. Simons himself wrote some arxiv papers with Dennis Sullivan, harkening back to his work from the 1970’s on differential cohomology (something about axiomatizing or characterizing the theory that had been originally defined by a construction).

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