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How would you best describe them





It's a prop trading firm. It's pretty important to distinguish between hedge funds that take public money (which are generally probably low quality, as the OP described) and prop trading firms that only or primarily trade their own money (Two Sigma, Renaissance, Jane Street, Jump trading, etc.). The latter deserve their mystique, because you only trade your own money if you are actually beating the market.

Two Sigma and Renaissance (albeit not Medallion) primarily invest outside capital.

Renaissance does take outside capital, but their primary business is Medallion. The outside capital is just a way to make a bit more by trading on their reputation.

Two Sigma does generate a bit more revenue from outside capital than Renaissance, but it is my understanding that the heart of their business is still prop trading. But I don't know that for certain.


Can you comment on relevance for society? Do these companies generate a net positive, or do they only extract value?

I.e. should I look for a job there only because of the money, or also because I can make a difference somehow in the bigger societal picture?


Difficult question, at least if you'd try to argue without politicizing too much. I'd say it's a false dichotomy to equate 'making money on the stock market on your own investments' with '(negatively) extracting value'. On the whole of it I'd argue that the existence of a stock market is a public good since it makes capital more liquid, more accessible and more transparent. Going from that to argue that firms that invest purely for themselves deliver a whole lot of positive externalities would be hard for me. I'd call it Lawful-Neutral. It's wholly within the rules of society, doesn't create very clear negatives and clearly delivers positives for those involved (employees, stockholders, etc.).

If you have a 'millenial mindset' and want to work where you directly and positively impact society, I'd choose elsewhere. From a Peter Singer-like perspective, if you'd earn top dollar there and spend at least a modest amount giving to the right charities, you might still be making the world a better place, even compared to the other place.


I'd maybe agree with your points, except the last point: if these traders keep all/most smart people from the job market, then even your dollars would not make a difference. Of course this is overblown but it is similar to the concern that "all of our smart people are trying to make people click ads".

I think the way to think about it is that this "make people click on ads" problem needs to be solved. Just like this "value assets efficiently" problem needs to be solved. And if you can contribute to solving either problem more efficiently, that frees up the next smartest person to do something more directly productive.

No, because how do you solve a problem better than with one smart person? The answer is with two smart people.

And from there you get an endless race using more smart people to solve pointless problems.


Sure, but you can only solve these problems so well. They are of finite complexity.

I would say yes, they do make a positive difference for society, but in a fairly abstract way.

Efficient capital markets are an extremely important part of a market economy. They allocate capital where it will do the most good. Firms like Renaissance make that process more efficient. That is, they take a process that used to require 1000 MBAs working full time, and they accomplish it with 4 physicists, and automate it. This frees up the 1000 MBAs to go do something more productive with their time.

I think it's easy to be dismissive of this sort of value creation because of how abstract it is, and how concentrated the wealth creation at a firm like Renaissance is. However, I think the value add to society is actually real.

There are legitimate questions about the value being added by ultra high frequency firms. The ones that engage in market making are definitely adding value, but the ones that are doing things more like front-running or statistical front-running are a lot more questionable.


I think this deserves a little bit more scrutiny in particular because the OP is asking about making a difference.

1. I would argue they're not a net positive. Making markets more efficient is fine but markets are already extremely efficient. The biggest social good can be achieved by working on issues that are classical market failures and full of externalities. Climate change, healthcare, basic science, education and so on. The man-hours invested in these prop trading platforms compared to the benefit to society is maybe positive under the microscope, but negative when one considers opportunity cost.

2. They're freakishly proprietary. They're corporate black boxes full of 200 IQ people who could be solving and distributing knowledge, but they're basically locking them in the basement to make money. Put any of those researchers into a public university and over the course of their career, they could educate thousands of fine researchers.


> Efficient capital markets are an extremely important part of a market economy.

i was under the understanding that the entire point of the medallion fund is that markets are not efficient and can be taken advantage of, which is exactly how medallion works.


That is exactly right, but as Medallion takes advantage of them, they become efficient with respect to Medallion's trading strategies.

You actually need to ask other people if you should care about more than money when looking at a job? Weird.

They trade their own money instead of OPM



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