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.