Is the annualized compounded return of Medallion over 35%?

TL;DR

This paper challenges the reported high annualized returns of Medallion by proposing more accurate estimation methods, revealing the true compounded return is likely below 35%, which impacts fund performance evaluation.

Contribution

It introduces a new estimation approach based on fund sizes and trading profits, providing more accurate performance metrics for Medallion and similar funds.

Findings

Estimated Medallion's compounded return at 31.8% before fees

Proposed alternative method yields 25.6% growth rate for Simons

Reported annualized returns above 60% are likely overstated

Abstract

It is a challenge to estimate fund performance by compounded returns. Arguably, it is incorrect to use yearly returns directly for compounding, with reported annualized return of above 60% for Medallion for the 31 years up to 2018. We propose an estimation based on fund sizes and trading profits and obtain a compounded return of 31.8% before fees. Alternatively, we suggest using the manager's wealth as a proxy and arriving at a compounded growth rate of 25.6% for Simons for the 33 years up to 2020. We conclude that the annualized compounded return of Medallion before fees is probably under 35%. Our findings have implications for correctly estimating fund performance.