An excerpt from the testimony of Jim Simons before the House Committee on Oversight and Government Reform:

Renaissance, an SEC-registered Investment Adviser since 1998, manages what are termed quantitative funds – funds whose trading is determined by mathematical formulas designed to predict market behavior. Individual trades are generated by computers, based on work continually developed by our researchers. Naturally, human beings carefully monitor the trade execution process, making sure that all parts of the system are behaving properly. We operate in only highly liquid, publicly listed securities, such as stocks, bonds, currencies, and commodities, and do this on exchanges throughout the world. This means, for example, that we do not trade in credit default swaps or collateralized debt obligations, neither.of which satisfies the above criteria. In the stock trading of our Medallion Fund, we hold balanced portfolios in each country, i.e., portfolios very close to being equally long and short. Our trading models tend to buy stocks that are recently out of favor and sell those recently in favor. Thus, to some extent, our actions have the effect of dampening extreme moves in either direction, and, as a result, reducing volatility in those stocks. An example of this contrarian tendency is the fact that during the six-week period ending this September, Medallion held long positions in many of the most troubled of the financial stocks, including Lehman Brothers and Washington Mutual. We of course lost money on those trades!

Renaissance manages three fund families: Medallion, RIEF and RIFF. The first is our flagship fund, which we have operated for twenty years with great success. In the early part of this decade, we determined that the fund had grown too large, and we began to return capital to investors who were not employees of the firm. That process was completed in 2005, and since then the fund has been almost entirely owned by the people who operate it – Renaissance employees. We charge ourselves fees because fund investment is not allocated in the same proportion as is employee compensation. For example, my share of Medallion is far greater than is my share of employee compensation. Thus, the fee mechanism moves income away from the largest owners of the firm to the rest of the employees. Nearly all of the income of the firm and its employees is based on the performance of Medallion, a fund whose investors are almost exclusively its managers.

In recent years, Renaissance started two new funds aimed at outside investors: the Renaissance Institutional Equities Fund (RIEF) and the Renaissance Institutional Futures Fund (RIFF). The first is net long one dollar of U.S.-traded stocks for each dollar of equity in the fund and is designed to be a lower-volatility and higher-return substitute for an index fund, The second is a slow trading fund, investing in commodities, currencies, bonds, and stock indices, and is designed to deliver an attractive return at relatively low volatility. RIEF has done a fine job during its three years plus of existence. RIFF, started 13 months ago, did well during its first nine months but has been challenged by the turbulence of this fall, during which its returns were disappointing. Both of these funds, designed for institutional investors, are lightly leveraged and charge fees less than half of those charged by mainstrearn hedge funds. These institutional funds are a new business for Renaissance, and while their financial contribution to the firm has been exceptionally modest, we have high hopes for the long term.