The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution

by Gregory Zuckerman

“It was like being with a bunch of Sheldons,” says an outsider on the trip, referring to the character on the tel...

And in Chicago, Ken Griffin—who, in the late 1980s, had installed a satellite dish on his dormitory roof at Harvard to get up-to-the-second quotes—was using high-powered computers to make statistical-arbitrage trades and other moves at his $13 billion firm, Citadel.

Dwyer had battled Crohn’s disease in his youth. The symptoms had abated, but now he was dealing with sharp aches, fever, and terrible abdominal cramping; his stress had triggered a return of the disease.

After the meeting, Dwyer drove to Long Island Sound to board a ferry to Massachusetts to meet his family for the weekend. As Dwyer parked his

car and waited to hand his keys to an attendant, he imagined an end to his agony. ...

For another five minutes, Simons was gripped with terror. Then, suddenly, he

relaxed, color returning to his face. “I got it!” Simons yelled to Robert. “There’s a principle in physics: We can’t tip over unless the tires have traction! We’re in sand, so the tires have nothing to grab on to!” Simons flashed a smile, proud he’d figured out a most relevant scientific problem.

In the summer of 2008, Whitney announced he was accepting a leadership role at the National Museum of Mathematics, or MoMath, the first museum in North America devoted to celebrating mathematics. Colleagues mocked him. If Whitney really wanted to improve society, some told him, he’d stay, accumulate more wealth, and then give it away later in life.

“I have a right to personal happiness,” Whitney responded. “That’s selfish,” a staffer sniffed. Whitney quit.

Magerman moved with his wife and three children from Long Island to Gladwyne, Pennsylvania, outside Philadelphia, searching for a calmer and more spiritual lifestyle.

But the Medallion fund thrived in the chaos, soaring 82 percent that year, helping Simons make over $2 billion in personal profits.

With fellow hedge-fund managers George Soros to his right and John Paulson on his left, Simons told Congress that he would back a push to force hedge funds to share information with regulators and that he supported higher taxes for hedge-fund managers.

Paulson and Pellegrini purchased protection for the riskiest mortgages in the form of credit default swaps, resulting in a $20 billion windfall over 2007 and 2008. George Soros, the veteran hedge-fund investor, placed his own CDS bets, scoring over a billion dollars in profits.3 Baby-faced, thirty-nine-year-old David Einhorn won his own acclaim at a May 2008 industry conference when he accused investment bank Lehman Brothers of using accounting tricks to avoid billions of dollars of real-estate-related losses. Einhorn, who later attributed his success to his “critical thinking skill,” was vindicated later that year when Lehman declared bankruptcy.4

In 2008, after RIEF dropped about 17 percent, Renaissance’s researchers waved the losses off; they were within their simulations and seemed puny compared to the S&P 500’s 37 percent drubbing, including dividends, that year. The scientists became concerned in 2009, however, when RIEF lost over 6 percent and the S&P 500 soared 26.5 percent. All those investors who had convinced themselves that RIEF would generate Medallion-like returns suddenly realized the firm was serious when it said it was a very different fund. Others grumbled that Medallion was still killing it while RIEF was struggling, believing something unfair was going on.

Investors began to flee RIEF, which soon was down to less than $5 billion. A second fund Simons had started to trade stock futures also took on water and lost investors, while new clients dried up.

A year later, after some more underwhelming performance from RIEF, Simons, who had turned seventy-two, decided it was time to pass the torch at the firm to Brown and Mercer. Medallion was still on fire. The fund, now managing $10 billion, had posted average returns of about 45 percent

a year, after fees, since 1988, returns that outpaced those of Warren Buffett and every other investing star. (At that point, Buffett’s Berkshire Hathaway had gained 20 percent annually since he took over in 1965.)

Back home, Simons lived in a $50 million apartment in a limestone, pre-war Fifth Avenue building with stunning Central Park views. Some mornings, Simons bumped into George Soros, a neighbor in the building.

“The kids didn’t like me; I didn’t like them,” he says.

at least tone down, his confrontational behavior, and he seemed to make progress.

Medallion’s long-term record was arguably the greatest in the history of the financial markets, a reason investors and others were becoming fascinated with the secretive firm. “There’s Renaissance Technologies, and then there’s everyone else,” The Economist said in 2010.4

Medallion still held thousands of long and short positions at any time, and its holding period ranged from one or two days to one or two weeks.

The company now employed about 250 staffers and over sixty PhDs, including experts in artificial intelligence, quantum physicists, computational linguists, statisticians, and number theorists, as well as other scientists and mathematicians.

Astronomers, who are accustomed to scrutinizing large, confusing data sets and discovering evidence of subtle phenomena, proved especially capable

of identifying overlooked market patterns. Elizabeth Barton, for example, received her PhD from Harvard University and used telescopes in Hawaii and elsewhere to study the evolution of galaxies before joining Renaissance. As it slowly became a bit more diverse, the firm also hired Julia K...

“We’re right 50.75 percent of the time … but we’re 100 percent right 50.75 percent of the time,” Mercer told a friend. “You can make billions that way.”

Renaissance staffers deduced that there is even more that influences investments, including forces not readily apparent or sometimes even logical. By analyzing and estimating hundreds of financial metrics, social media feeds, barometers of online traffic, and pretty much anything that can be quantified and tested, they uncovered new factors, some borderline impossible for most to appreciate. “The inefficiencies are so complex they are, in a sense, hidden in the markets in code,” a staffer says. “RenTec decrypts them. We find them across time, across risk factors, across sectors and industries.”

what staffers call multidimensional anomalies—that other investors were oblivious to or didn’t fully understand.

How the firm wagered was at least as important as what it wagered on. If Medallion discovered a profitable signal, for example that the dollar rose 0.1 percent between nine a.m. and ten a.m., it wouldn’t buy when the clock struck nine, potentially signaling to others that a move happened each day at that time. Instead, it spread its buying out throughout the hour in unpredictable ways, to preserve its trading signal.

Simons summed up the approach in a 2014 speech in South Korea: “It’s a very big exercise in machine learning, if you want to look at it that way. Studying the past, understanding what happens and how it might impinge, nonrandomly, on the future.”5

Mercer was truly self-contained. He once told a colleague that he preferred the company of cats to humans.

Owl’s Nest—a nod to another creature known for wisdom, calm, and long periods of silence—where he toyed with a $2.7 million model train that ran on a track half the size of a basketball court.

(In 2009, Mercer sued the manufacturer, claiming he had been overcharged by $700,000.

The manufacturer countered

that the costs had ballooned after it was asked to finish installing the track in a rush before M...

“I’m happy going through my life without saying anything to anybody,” Mercer told the Wal...

Once, Mercer rattled off an array of statistics to demonstrate that nature emits more carbon dioxide than humans. Later, when Cooper checked the data, it was accurate, but Mercer had overlooked the fact that nature absorbs as much carbon dioxide as it emits, which mankind does not.

Citizens United v. Federal Election Commission, ruling that election spending by wealthy donors and others was a form of free speech protected under the First Amendment. The decision paved the way for super PACs, which could accept unlimited amounts of money to support a candidate as long as they didn’t officially coordinate with the campaign. After the decision, Simons began donating heavily to Democratic causes, while Mercer stepped up his support

for Republican politicians. Mercer’s penchant for privacy limited his activity, however, as did his focus on Renaissance. It was his second-oldest daughter, Rebekah, who started showing up at conservative fund-raising events and other get-togethers, becoming the family’s public face, and the one driving its political strategy.

Freedom Partners Action Fund, a conservative political action committee founded by billionaire industrialists Charles and David Koch and the Heritage Foundation.

The Mercers quickly lost patience with the established organizations, however, and drifted to more controversial causes, giving $1 million to a group running attack ads against a proposed mosque in the vicinity of the World Trade Center’s Ground Zero in lower Manhattan.

Bannon helped broker a deal for Mercer to invest in an analytics firm called Cambridge Analytica, the US arm of the British behavioral research company SCL Group.

For guidance, the Mercers turned to Bannon. At the time, Breitbart’s online traffic was soaring, validating their faith in the political provocateur. When Mercer hosted Bannon on his 203-foot yacht, Sea Owl—yet another owl—Bannon wore shorts, cursed freely, belched, and held forth like a close relation, according to some people present. Bannon advised the Mercers on which political and media ventures to invest in and escorted potential beneficiaries to Rebekah’s triplex at Trump Place.fn1

“He’s a nice guy,” he insisted to a friend. “He’s allowed to use his money as he wishes. What can I do?”

“The Mercers laid the groundwork for the Trump revolution,” Bannon said. “Irrefutably, when you look at the donors during the past four years, they have had the single biggest impact of anybody.”3

The morning an online version of the story appeared on the paper’s website, Magerman received a phone call from Renaissance. A representative told Magerman that he was being suspended without pay and was prohibited from having any contact with the company.

The Mercers received death threats, friends said, forcing the family to hire security. For a family that relished its privacy, their growing infamy was both shocking and disturbing.

The deal wasn’t finalized, though. To help repair the relationship, Magerman decided to attend an April 20 poker tournament at New York’s St. Regis hotel benefiting Math for America, the nonprofit that Simons had founded. The event was a highly anticipated annual showdown for quants, professional poker players, and others. Magerman knew Simons, Mercer, Brown, and other Renaissance executives would be there. Who knew, maybe Rebekah Mercer would show up?

Magerman entered the poker room and immediately saw Bob Mercer. This was no time to be shy, Magerman thought. He walked right up to Mercer and complimented him on the color of his suit, which was an unusual shade of blue. Mercer smiled and said one of his daughters had picked it out, an exchange that seemed to go well.

“I’m sorry how things played out,” Magerman told Simons. “I respect you and want you to know that.” Simons accepted the apology and said their standoff seemed to be coming to a resolution, further buoying Magerman. Back at his table, Magerman lost some early hands but remained in good spirits, pledging an additional $15,000 for buy-ins so he could continue playing.