Mutiny Breaks Out Inside The World's Most Successful Hedge Fund Over Donald Trump
Last August, we introduced readers to the hedge fund that we dubbed the “puppe master behind the US presidential election“, which also happened to be the most successful hedge fund in history : Setauket-based Renaissance Technologies (a recent analysis by LCH found that Ray Dalio’s Bridgewater, with $45 billion in absolute profits since inception, was the most successful but the ranking ignored Renaissance, which has return $10 billion more).
Formerly known best for making a staggering $55 billion since its founding, RenTec as it is better known in financial circles, also emerged as perfectly hedged when it comes to the outcome of the presidential election. On one hand, there was RenTec’s chain-smoking billionaire founder (in 2015 alone he made $1.7 billion) Jim Simons, who had donated some $10 million to Hillary Clinton’s campaign, second only to Saban Capital. In a June 2016 interview with CNBC, Jim Simons said that “if you compare the presidential candidates using the Sharpe ratio, presumptive GOP nominee Donald Trump is ‘not a good investment.'”
Meanwhile, Rentec’s Co-CEO, billionaire Robert Mercer, emerged as the man who was pulling the string behind Donald Trump’s entire campaign. As the WSJ reported at the time, Mercer has longstanding ties to both people elevated to top posts in the Trump campaign. He and his daughter, Rebekah, not only poured money into the Trump campaign, but had recommended both Breitbart News chairman Stephen Bannon (they had invested $10 million in Breitbart News) and Republican pollster Kellyanne Conway, who already worked for the campaign, to join the Trump team around the time it found itself in disarray with last summer’s scandals involving Tim Manafort. (Trump returned the favor, in part, by pouring that campaign money back into a data-analytics firm co-owned by Rebekah, who was later named to Trump’s transition team executive committee.)
And just like that the man who Rentec’s founder, Jim Simons, said “is not a good investment” because his “Sharpe ratio is terrible”, had become the investment of RenTec’s current CEO.
A few months later, the investment paid off; Simons was wrong but thanks to Mercer’s “bet”, Renaissance ultimately won.
Fast forward to today when one would think that as a result of this “perfect hedge”, the finely-tuned money-making machine that is RenTec, would be sailing smoothly. However a fascinating new report by WSJ’s Greg Zuckerman, reveals that nothing could be further from the truth.
As Forbes eloquently puts it, “in your average workplace in your average election year, the politics of the guys or gals running the place might be discussed privately among staff but likely wouldn’t result in a confrontation with the boss. What’s more, the mostly left-leaning employees at Renaissance have had a like-minded friend in chairman and founder Jim Simons, who has been a major donor to the Democratic Party and Hillary Clinton’s bid for the White House. But 2016 was not your average election year and Renaissance is not your average workplace. With the amount of money people are taking home, they literally have the ability to reshape America in whichever way they see fit. And for Renaissance partner and research scientist David Magerman, Mercer’s support for Trump’s anti-immigration policies and his associations with white-nationalist fellow travelers was too much to take.”
A quick bit of background: Magerman makes millions each year, drives a Tesla and says he gives more than $10 million in charity annually. A research scientist, he is one of 100 partners at the firm, but he isn’t one of Renaissance’s most senior executives. Magerman, a 20-year Renaissance veteran who helped design the fund’s trading systems. He has concluded that every new piece of code he developed for Renaissance helped Mr. Mercer make more money and gave him greater ability to influence the country.
In recent months Magerman – a registered Democrat who calls himself a centrist, and who had complained to colleagues about Mercer’s role as a prominent booster of Donald Trump’s presidential campaign – started to become a more vocal at the office about his disdain for Mercer’s activities, which resulted in this awkward phone call with his boss, as reported by The Wall Street Journal:
Magerman says he was in his home office in suburban Philadelphia earlier this month when the phone rang. His boss, hedge-fund billionaire Robert Mercer, was on the line.
“I hear you’re going around saying I’m a white supremacist,” Mr. Mercer said. “That’s ridiculous.”
“Those weren’t my exact words,” Mr. Magerman said he told Mr. Mercer, stammering and then explaining his concerns about Mr. Trump’s policy positions, rhetoric and cabinet choices.
“If what you’re doing is harming the country then you have to stop.”
Following such a rather “uncomfortable” phone call with his billionaire boss, as well as the real possibility of getting fired, one would think the democrat would have prudently decided to keep his mouth shut. But Magerman did no such thing. In fact, he ramped up his efforts to show Mercer that he’s not going to stand by and let the politics of Breitbart News ruin the country. There were more phone calls:
Magerman says he first spoke with Mr. Mercer in January, when Mr. Magerman, who donates to local schools, called Mr. Mercer to ask for the opportunity to reach out to Rebekah Mercer to offer the administration help on education policy. During the call, they talked politics, disagreeing about some of the administration’s early steps. After airing his concerns with others at the company, Mr. Magerman received the second call from Mr. Mercer two weeks ago.
The conversation grew strained. After telling Mr. Mercer to stop harming the country, he said Mr. Mercer responded that his goal had been to defeat Mrs. Clinton and that he wouldn’t remain very involved in politics.
“How can you say you’re not involved?” Mr. Magerman said, citing an outside group Rebekah Mercer was involved in that was aimed at boosting Mr. Trump’s agenda.
Not content with keeping the matter internal, Magerman then broke the cardinal rule of hedge funds – and certainly the most secretive hedge funds in the world, one founded by a former codebreaker – he went public.
As the WSJ says “until now nobody within the tight-lipped hedge fund has gone public with a grievance.” The changed when Magerman contacted Zuckerman to tell him that Mercer’s “views show contempt for the social safety net that he doesn’t need, but many Americans do.” Speaking to the WSJ reporter at the Dairy Café, a kosher restaurant he owns in Bala Cynwyd, Pa., Magerman said that “now he’s using the money I helped him make to implement his worldview” by supporting Mr. Trump and encouraging that “government be shrunk down to the size of a pinhead.”
He has also tried to get to the source of his angst: those closest to Trump such as Jared Kushner:
To try to counteract his boss’s activities, Mr. Magerman says he has been in touch with local Democratic leaders and plans to make major contributions to the party. He says he called Planned Parenthood to offer his assistance and contacted Jared Kushner, Mr. Trump’s son-in-law and White House adviser, to voice his concerns about Ms. Conway and Mr. Bannon. He says he failed to reach Mr. Kushner.
Failing to generate traction, Magerman decided to use the nuclear route: use political connections to hurt his own employer:
Mr. Magerman has one idea that would reduce the power of people like Mr. Mercer. He said he was thinking about reaching out to Democratic Sen. Elizabeth Warren (D., Mass.) to craft proposals to reduce speculative trading, which presumably would curtail Renaissance’s profits.
Needless to say, such a dramatic attempt at corporate self-destruction would hardly be smiled upon by either by the republican Mercer, or RenTec’s democratic founder, Jim Simons, who has invested his entire career into creating the world’s most secretive, and successful, quant fund.
What happened next? Apparently, the self-loating employee thought that letting his conscience speak – quite publicly – would have no consequences.
In conversation at his cafe, Mr. Magerman said he hoped his public statements wouldn’t cost him his job. But if he does get fired, he said, he would have more time to devote to politics and other causes. “This is my life’s work—I ran a group that wrote the trading system they still use,” he said. “But I feel relieved I’m now doing something, and if they fire me, maybe it’s for the best.”
Unfortunately for Magerman and his idealistic universe, in the real world there are real consequences, and as the WSJ concludes:
On Thursday morning, after an online version of this story appeared, Mr. Magerman received a new phone call from Renaissance. A representative told Mr. Magerman that he was being suspended without pay and no longer could have contact with the company.
While we don’t know if Magerman will be content with the status of his conscientious objector crusade against his employer, we are confident he will have much more free time to ruminate on the consequences of his actions. And, as he himself said, he will surely be relieved to no longer be with his loathsome ex-employer unless, of course, his entire story was just a hypocritical charade.