Renaissance’s Insiders Get an Added Bonus With Medallion Fee Cut

Bookmark

Renaissance Technologies employees enjoyed a banner year in 2020 as the firm’s secretive internal fund crushed the broader market. Now, they’re getting an added bonus: a reduction in one of the fees they pay for the privilege of investing in the Medallion fund.

Renaissance cut Medallion’s annual management fee to 4% from 5% of net assets, which went into effect in January, according to a March 30 regulatory filing. According to one person with knowledge of the fund, Renaissance has yet to explain the fee reduction to Medallion investors, who include employees as well as some individuals with deep ties to the firm.

A spokesman for Renaissance declined to discuss the fee change or Medallion’s performance.

Medallion’s management fee remains far higher than the industry standard -- the average is 2% -- and it’s an outlier in another way. Insiders at most other investment firms pay nothing at all. Still, Medallion’s unparalleled track record has made it the industry’s most desirable, and exclusive, investment. The computer-driven strategy has generated an average annual return of 40% since its inception in 1988.

The fees help cover the cost of running Renaissance, which is said to rely on some of the world’s most powerful computers to carry out Medallion’s trading strategies. The fund’s ability to predict price changes in global markets remains unrivaled on Wall Street.

Partners at Renaissance recoup some of the fees by sharing in the firm’s profits, according to the person familiar with the firm. Renaissance pays out its profits from fee revenue in the form of periodic dividends to partners, the person said.

Costs may have been defrayed by Medallion’s stellar performance last year: the fund was up 76%, making it one of its best years ever, according to Institutional Investor. That surge in profits may help offset the drop in revenue from the new, lower fee.

What’s more, Medallion -- which for years has sought to cap net assets at about $10 billion to preserve returns -- reported assets including leverage at year-end had almost doubled since 2019 to $34.8 billion.

The jump could reflect greater borrowing by the fund, a change of its twice-a-year profit pay-out date or a decision to keep more assets in Medallion. Allowing a larger fund size would help cover the fee reduction, as well as signal that the firm sees more investment opportunities.

Medallion’s performance fee, at 44% of profits, remains unchanged. The fund wasn’t always so expensive. As recently as 2012, the fund charged an annual management fee of 2.50%, regulatory filings show.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.