Jim Herrnstein loves a good puzzle
Probably the most interesting astronomer / hedge fund quant / global philanthropist you’ll meet this year
I spent some time with G20 member Jim Herrnstein last week, for one of my more interesting conversations with one of the more brilliant and humble people I’ve encountered in my travels. To say Jim’s not your typical entrepreneur would be a dramatic understatement. First off he has a PhD in astrophysics from Harvard, and in astrophysics circles is best known as part of the team that in 1995 used an $86 million radio telescope spread from Hawaii to the Virgin islands to find the first black hole hidden at the center of a galaxy.
Here’s how the New York Times covered it at the time:
A gigantic concentration of mass, equivalent to 40 million Suns, has been detected at the heart of a distant galaxy. It is a region of incredible turbulence, surrounded by a maelstrom of gas and dust, generating powerful X-rays and twisted jets of gas emerging at speeds of 400 miles a second. It is almost certainly a black hole.
If there was any lingering doubt, astronomers said today that this dense mass in the center of the spiral galaxy NGC 4258 was ‘compelling evidence’ for the reality of black holes in many galactic cores. Predicted by Einstein’s general theory of relativity, black holes are masses of collapsed stellar material so dense that nothing, not even light, can escape their gravitational fields, which is why they have been so maddeningly elusive.
Amazing. And not where Jim Herrnstein’s story ends.
Rather than rest on his laurels as a tenured professor in some Ivy-covered sanctuary, an invitation to speak at a peer conference led to Jim deciding to apply his remarkable math and physics skills to one of the world’s most successful quantitative hedge funds, Renaissance Technologies. Wikipedia’s entry on Renaissance begins with this:
Renaissance Technologies LLC is an East Setauket, New York-based American investment management firm founded in 1982 by James Simons, an award-winning mathematician and former Cold War code breaker, which specializes in systematic trading using only quantitative models derived from mathematical and statistical analyses. Renaissance is one of the first highly successful hedge funds using quantitative trading — known as “quant hedge funds” — that rely on powerful computers and sophisticated mathematics to guide investment strategies.
In 1988 the firm established its most profitable portfolio, the Medallion Fund, which used an improved and expanded form of Leonard Baum’s mathematical models, improved by algebraist James Ax, to explore correlations from which they could profit. Simons and Ax started a hedge fund and christened it Medallion in honor of the math awards that they had won.
Renaissance’s flagship Medallion fund, which is run mostly for fund employees, “is famed for one of the best records in investing history, returning more than 35 percent annualized over a 20-year span.” From 1994 through mid-2014 it averaged a 71.8% annual return.
Read that again: 71.8%, average.
Albert Einstein — who pretty much owes Jim and his team for proving his theory of black holes at the center of galaxies — once said the most powerful force in the universe was compound interest. To give you a sense of that power… if I’d taken the $100 my grandparents gave me as a present when I graduated HBS in June of 1994 and invested it in the Medallion Fund, I’d have been able to withdraw $5 million from the account 20 years later, and still have had enough left over to give a Ford Fusion to my daughter who got her license in 2014.
But even that’s not the most interesting thing about Jim Herrnstein.
In his spare time, Jim is the Chairman of of an organization called Pivot, whose mission — based on “a fundamental belief in the worth of all people and a moral responsibility to address the needs of the destitute” — is to create a model system of universal access to quality health care for Madagascar via comprehensive health system strengthening in a region near Ranomafana National Park.
That’s right. Madagascar.
Why the hell Madagascar? Why should anyone who could do a guest cameo on Billions spend his time trying to save lives on an Island 8,600 miles from home? Those are the questions I asked Jim in the second segment of our interview, and a big part of the reason this particular conversation was so special to me, and something I wanted to share especially during this season of giving.
Then get to work helping somebody else.