How Jim Simons pioneered quantitative trading and transformed Wall Street

By William Watts

Mathematician who founded Renaissance Technologies, considered one of the most profitable investment firms of all time, dies at 86

Billionaire Jim Simons, an acclaimed mathematician who went on to found one of the most profitable trading firms of all time and pioneered the field of quantitative investing, has died at the age of 86.

Simons died Friday in New York City, the Simons Foundation - a private research foundation founded by Simons and his wife, Marilyn, in 1994 -announced on its website.

Simons founded Renaissance Technologies in 1978. Eschewing traditional Wall Street personnel, he staffed the firm with fellow scientists and mathematicians to build predictive models designed to detect market patterns. Renaissance then unleashed computers to automatically trade on those signals.

Read: 'Jim Simons was the greatest' - Ray Dalio, others pay tribute to trading legend

Fundamental investors track corporate earnings, balance sheets, industry trends, valuations, the economy and other sources of information to make informed investment decisions. Berkshire Hathaway's (BRK.A) (BRK.B) Buffett epitomizes the fundamental approach, focusing on the ins and outs of corporate balance sheets combined with common-sense judgment.

Quantitative analysis, on the other hand, uses mathematical and statistical modeling that pulls in a sometimes-dizzying array of inputs to screen investment ideas.

Renaissance eventually turned into a moneymaking machine. Its flagship Medallion Fund produced gains of more than $100 billion and average annual returns of 66% before the firm's outsize investor fees between 1988 and 2018, according to the Wall Street Journal's Gregory Zuckerman, who wrote the 2019 biography of Simons, "The Man Who Solved the Market." The annual gains were 39% after those fees, beating Warren Buffett, George Soros, Peter Lynch and other investors over that stretch, according to Zuckerman. Several years ago, the fund was limited to Simons and his colleagues.

As recounted by Zuckerman, Renaissance often held trades for mere minutes, leaving the trading to the firm's computers.

The popularity of quantitative trading subsequently soared on Wall Street. Mathematicians, physicists, computer scientists and others with more scientific backgrounds have been hired by hedge funds, banks and other investment firms in droves to fill roles on trading desks and elsewhere.

And even traditional, fundamentally oriented trading firms have increasingly incorporated quantitative elements into their strategies.

Archive: The next frontier in investing is 'quantamental' stock picking (October 2018)

Simons stepped down as CEO of Renaissance in 2010 but continued to lead its board until 2021.

Forbes estimated that Simons had a fortune of $31.4 billion and that he had given away around $6 billion to philanthropic causes during his life.

Before starting Renaissance, Simons chaired the math department at Stony Brook University in New York. His mathematical breakthroughs during that time are now instrumental to fields such as string theory, topology and condensed-matter physics, the Simons Foundation said.

-William Watts

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05-10-24 1705ET

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