How Jim Simons Built the World’s Most Lucrative Black Box

(Bloomberg) -- Anyone looking to learn how a quant fund conquered the financial world should go out and buy Greg Zuckerman's “The Man Who Solved the Market” when it's released next week.

Zuckerman provides the closest thing readers may ever get to a definitive account of how Jim Simons, a mathematics prodigy turned code-breaking savant, built Renaissance Technologies into the greatest money-making machine in Wall Street history.

The story of how Simons channeled his inner Thomas Edison into building a financial behemoth out of a strip mall on Long Island is without precedent. Zuckerman brings the reader so close to the firm's inner workings that you can almost catch a whiff of the billionaire's Merit cigarettes, even if he doesn't completely lay bare the secrets of how Ren Tech's black box actually works.

Read More: How Jim Simons Built the Best Hedge Fund Ever: Barry Ritholtz

Some readers -- perhaps those more interested in political intrigue than finance -- might be tempted to skip past the early years of the Medallion fund to a more salacious story involving another Ren Tech billionaire: Robert Mercer.

Mercer, as readers probably know by now, used his vast wealth and data wizardry to help Donald Trump win the 2016 presidential election by leveraging Steve Bannon's political prowess and data powerhouse Cambridge Analytica.

The aftermath of Mercer's political activities resulted in an uprising within the firm from David Magerman, one of the creators of the hedge fund's trading system.

And here is where Zuckerman's storytelling excels.

Magerman, who became something of a folk hero after his confrontation with Mercer became public, doesn't get the white knight treatment. Zuckerman provides a nuanced profile that explains why it was Magerman, and not Simons -- one of the country's largest Democratic donors -- who ultimately raged against Mercer's political activities.

Seeking Approval

The Magerman chapter covers his upbringing as an insecure and troubled child with a penchant for picking fights. Later, he's depicted equally as a world-class programmer who became a “pet” of the mathematical heavyweights that stalked Ren Tech's hallways and as someone who would occasionally unleash chaos around the office in his attempts to prove himself.

By Zuckerman's telling, Magerman was constantly in search of the approval of male authority figures to make up for a strained relationship with his father. Mercer was once one of those men.

Read More: Jim Simons Reveals Clues to Medallion Fund's Unrivaled Run

The Magerman-Mercer relationship wasn't always tense. The programmer often tagged along on Mercer family movie nights and other outings in the mid-90's. After making enough money to update his wardrobe, Magerman began to emulate his boss by co-opting the elder Mercer's sartorial style of wearing suspenders.

But it wasn't long before the once-friendly relationship turned icy for reasons that aren't entirely clear to Magerman, according to Zuckerman. It could have been his open criticism of Rebekah Mercer's work for the fund's trading group. Or perhaps it was his taking another Mercer daughter, Heather Sue, on a romantic canoe ride during one of Ren Tech's summer outings. Whatever the cause, Magerman was confused as to how he fell out of the Mercer family's good graces, though he later wrote a letter trying to smooth things over.

All of this background helps paint a more detailed picture of events that would transpire almost two decades later, reaching a climax after a public spat in the Wall Street Journal and a drunken night of poker that eventually ended up with Magerman's being fired from the hedge fund that made him a millionaire.

There are more great details of the episode -- and many others -- in the book, with Zuckerman providing an even-handed account of what has so far been an event that the tight-lipped firm and its reticent former co-CEO have declined to talk about.

To contact the reporter on this story: Brandon Kochkodin in New York at bkochkodin@bloomberg.net

To contact the editors responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net, James Ludden

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