Robert Mercer sure seems like a billionaire. He’s co-head of Renaissance Technologies, which runs a hedge fund that has created vast riches for two other owners. He bought a $90 million yacht and bankrolled the anti-establishment insurgency that carried Donald Trump to the White House. Newspapers and magazines have already taken to calling him a billionaire.
But in my job as a valuation manager for the Bloomberg Billionaires Index, I need better proof than that. So, as I did with Jamie Dimon and Lloyd Blankfein in 2015, I set out in search of facts that would show just how wealthy the secretive investor is. It would turn out to be one of the most challenging quests in my 14-year career valuing assets.
Mercer, 70, joined Renaissance in 1993 from IBM’s research center, where he worked on speech recognition. He became co-president in 2007. Like other partners in the firm — including co-founder Jim Simons, Henry Laufer and co-President Peter Brown — he has been a beneficiary of the legendary Medallion Fund, probably the world’s most successful hedge fund, which manages about $10 billion for Renaissance owners and employees.
Document Hunt
My search began, as it always does, with a hunt for documents. There were Securities and Exchange Commission and Department of Labor filings to go through, a 2014 Senate report, an employee lawsuit and other financial disclosures.
The first challenge was to find the fund’s historical returns. A 2012 Labor Department application requesting permission to have IRA assets invested in the fund disclosed returns for the 2000s. Figures for earlier and more recent years were provided to Bloomberg by investors or cited in other publications.
The results were astonishing: By my calculations, returns after fees have averaged about 40 percent since the fund started in 1988, and it hasn’t lost money since 1989. To put that in perspective: $1,000 invested in Medallion in 1988 would be worth more than $975,000 today after taxes.
But to determine how much money Mercer made, I would need to know a few more things: what Medallion’s assets were each year; how much of its profit was distributed; and what Mercer’s share of those payments was. That’s where things got difficult, because Renaissance is as secretive about its finances as it is about the algorithms that drive its investment strategies.
Medallion’s 2002 annual report disclosed assets for three years. It also showed returns and profits. And it revealed the fund capped its assets at about $5 billion. That meant that every six months any money in excess of the cap would be returned to investors. From the 2012 Labor Department document, I learned that all Medallion distributions were paid in cash. What I didn’t know was how the cap had shifted over the years to get to where it is today.
Mercer’s Share
So I filed a Freedom of Information Act request with the SEC for Medallion’s ADV filings going back to 1996. Those are the forms that contain information about investment advisers, including a fund’s assets. It took about two months for the forms to roll in, but once I had them I could roughly figure out where the caps were set. And, based on what I knew about returns, I could calculate how much the fund generated twice a year in excess of the cap.
The next challenge was figuring out how much of that Mercer got. Bloomberg previously reported that Medallion had kicked out external investors by 2005, and I learned from a person familiar with the fund’s operations that it started making distributions to executives and employees in 2006. That helped, but I still didn’t know what share of those profits went back to Renaissance to pay for expenses not covered by fee income, what percentage of distributions went to each partner or how much was paid in taxes.
Since I knew I wasn’t ever going to see Mercer’s tax returns, I decided to be as conservative as possible and assumed he paid the highest short-term capital-gains taxes of about 40 percent on Medallion’s trading profits, even though the 2014 Senate report said Renaissance may have avoided paying $6 billion in taxes from 2000 through 2013.
To figure out Mercer’s share, I went back to the ADV forms, which provided ownership ranges through 2008. The form for that year showed Simons owned 25 percent to 49.9 percent of Renaissance; Laufer had between 10 percent and 24.9 percent; Mercer and Brown each had 5 percent to 9.9 percent; and Mark Silber, chief financial officer, owned between 5 percent and 9.9 percent. The Bloomberg Billionaires Index typically uses the midpoint of disclosed ranges when valuing hedge fund managers, but in Mercer’s case, to be cautious, I used the low end.
While I couldn’t be sure that ownership stakes had remained the same, the 2014 Senate report revealed 70 percent of Renaissance was owned by the five members of its executive committee and their family trusts. The names of the five were in a footnote: Simons, Laufer, Mercer, Brown and Silber. That meant they still owned roughly what they did in 2008.
Medallion Allocations
Next, I had to figure out how much Mercer had invested in Medallion. The Labor Department document explained that fund allocations — the amounts employees are allowed to put in — are based on their position, compensation and ownership interest in the firm. Again, to be conservative, and because I didn’t know if the percentage changed over time, I used the low end of Mercer’s Renaissance stake as a proxy for his share of Medallion distributions.
There was one more variable: the percentage of Medallion’s trading profits that went back to the firm to cover expenses for technology, research and collateral. I knew from reporting by my Bloomberg colleague Katherine Burton that Renaissance invested heavily in research, especially after the financial crisis. The person familiar with the firm’s operations said that after 2009 about 40 percent of distributions went back to Renaissance.
Based on these assumptions, Mercer would have received about $60 million from Medallion in 2015, a year with below-average returns. The amount for the past 10 years: $910 million. Assuming a 5 percent share of the fund’s $10 billion in assets in 2015, he had $500 million more in Medallion, making him a billionaire.
Mercer’s donations still had to be subtracted from any valuation. So I examined his family foundation’s tax filings, known as 990s, and searched the Federal Election Commission website to find his political contributions since 2000. In all, he has given more than $45 million to political candidates, most of them Republicans, and $33 million to his foundation, which has supported groups denying climate change and other conservative causes. Deducting $78 million from Mercer’s total still makes him a billionaire.
And that doesn’t include the value of the black box that is Renaissance Technologies. Typically, Bloomberg wealth valuations assign a value to hedge funds. Surely one of the world’s most profitable funds and the algorithms that drive it would fetch a handsome price. One expert who values hedge funds said the firm was worth at least $10 billion. That would add another $500 million to Mercer’s pile.
Chihuly Chandelier
With or without a value for Renaissance, no matter how I ran the numbers, Mercer looked like a billionaire. The only way to get him below $1 billion was to assume that more than 75 percent of what he was entitled to went back to the firm. That would mean Mercer received $19 million from Medallion in 2009, the same year he ordered a 203-foot yacht with six cabins and a Dale Chihuly chandelier made of Venetian glass that cost almost five times as much as that.
So why isn’t the Bloomberg Billionaires Index doing what so many in the media have done and attaching the word billionaire to Mercer’s name?
Mercer wouldn’t comment. The person familiar with Renaissance’s operations said Mercer is very rich but not yet a billionaire. In the end, the uncertainty, the lack of transparency and the number of assumptions used in the calculations made it impossible to pin a number on him with a high degree of confidence.
With assistance from Katherine Burton.
This article was provided by Bloomberg News.
