Continue reading James Simons: Legendary hedge fund pro calls it quits

James Simons: Legendary hedge fund pro calls it quits originally appeared on BloggingStocks on Fri, 09 Oct 2009 10:30:00 EST. Please see our terms for use of feeds.

Continue reading Is the world's most successful hedge fund under SEC investigation?

Is the world's most successful hedge fund under SEC investigation? originally appeared on BloggingStocks on Fri, 15 May 2009 14:00:00 EST. Please see our terms for use of feeds.

Ever since the $50 billion Madoff Securities Ponzi scheme came to light, I have been wondering whether there are others out there that have yet to be discovered. While the facts of how Madoff was able to keep his scheme going remain elusive, it appears that a recent $7 billion cash call made it clear that he did not have enough cash on hand. If Madoff was indeed a Ponzi scheme, he would have needed to raise $7 billion from new investors to meet those redemption requests -- since he could not raise that much new money he folded his hand.

It is hard to believe that Madoff is the only scam artist out there. Why was Madoff able to pull it off for so long? Are there other funds with similar characteristics? Is James Simons' $35.4 billion (October 2007 assets under management) Renaissance Technologies such a fund? The answer to the last question is that it's possible but unlikely.

Since enough is not yet known about where Madoff's money came from and where it went, we don't know how he pulled it off. But, as I posted, there are four key elements that probably contributed:

• Unrealistically steady returns that others could not duplicate. Madoff reported 1% a month returns through a split conversion strategy that others could not duplicate but that investors wanted to believe was real;
• Lack of independent auditing. Madoff had a three-person audit firm -- one of whose members was a 78-year- old living in Florida;

Continue reading Could James Simons be the next Bernie Madoff?

Could James Simons be the next Bernie Madoff? originally appeared on BloggingStocks on Sun, 21 Dec 2008 10:05:00 EST. Please see our terms for use of feeds.

This week a little story about a $50 billion investment fraud has metastasized. Madoff Securities, a brokerage firm that ran a secretive investment fund on the side, has closed down -- revealing that its steady 10% annual returns was a result of a Ponzi scheme. For some who trusted Madoff a week ago, they are today coming to grips with life without money. Is Madoff the only one out there? I doubt it. So you need to protect yourself.

How did Madoff accomplish this? That story has yet to be revealed. But founder Bernie Madoff revealed that he was using money from his most recent investors to pay off the earlier ones who requested their money. And a letter from hedge fund research and advisory firm, Aksia -- which steered its clients away from Madoff -- reveals five useful clues:

• Unknown accounting firm. Madoff used an accounting firm Friehling & Horowitz that employed three people -- one was a 78 year old living in Florida.
• Incomprehensible investment strategy too good to be true. Madoff employed a "split conversion strategy" which was never clearly defined and whose returns other traders could not duplicate.
• Deception about technology. Madoff claimed it was technologically sophisticated but a visitor to its offices found paper tickets sent through the mail.

Continue reading $50 billion investment fraud: Could you be next?

$50 billion investment fraud: Could you be next? originally appeared on BloggingStocks on Sat, 13 Dec 2008 08:41:00 EST. Please see our terms for use of feeds.

James Simons is the richest math teacher you've never heard of. Last year he earned $1.7 billion (a fact that was reported in the media in 2007) as head of Renaissance Technologies, a hedge fund compound from which he takes enormous fees.

How enormous? Simons earns 5% of assets under management and 44% of profits. Typical hedge funds managers earn 2% management fees and 20% of the profits. How does Simons justify the fees? He beats the competition regularly. In 2006, his $6 billion Medallion fund posted gross returns of 84%; 44% after fees.

Simons's annual pay checks have been adding up nicely for him. His net worth was recently estimated at $5.5 billion. Not bad for a math teacher.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

Be sure to check out more Money Winners of 2007.

Money Winners of 2007: Renaissance Technology's James Simons originally appeared on BloggingStocks on Sun, 16 Dec 2007 13:40:00 EST. Please see our terms for use of feeds.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

Hedge fund Renaissance Technologies - looking to sell out? originally appeared on BloggingStocks on Tue, 28 Aug 2007 15:45:00 EST. Please see our terms for use of feeds.

The most highly paid hedge fund manager made $1.7 billion in 2006, according to the New York Times. That's 28,333 times more than the roughly $60,000 that the median U.S. family made in 2006.

Hedge funds are a good business to be in if you can attract lots of capital and earn high returns from investing it. That's because hedge fund managers take 2% of the assets under management as an annual fee. And they earn 20% of the profits they make for their investors. James Simons, the 69-year-old former math professor, who pulled in $1.7 billion, uses complex computer-driven mathematical models to make bets on stocks, bonds and commodities at his fund Renaissance Technologies. Simons fee is 5% of assets under management and 44% of profits. But he beats the competition regularly. In 2006, the $6 billion Medallion fund posted gross returns of 84%; 44% after fees.

A doctor asked me why, if he was such as hot shot, these money people made so much more than he did. The answer is fairly simple. Doctors get paid on a per patient basis. No matter how many patients the doctors take on, there are only seven days a week and 24 hours in a day. And if a doctor takes some time off from work, that further limits the available hours. And the pay for many of the procedures doctors perform is limited by government regulations.

Ours is a society that rewards making money. And hedge fund and private equity managers make more of it for their investors than anyone else. As they love to say, if you pay peanuts, you get monkeys.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

Leading hedge fund manager makes 28,333 times the median family income originally appeared on BloggingStocks on Tue, 24 Apr 2007 11:25:00 EST. Please see our terms for use of feeds.