Is the annualized compounded return of Medallion over 35%?

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 32.6% before fees with a 3% financing rate. 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 how to compute fund performance correctly.