Yen Bets Don’t Add Up for Hedge Fund Giant Rennaissance Technologies; The firm’s recent challenges underscore how even hedge funds with stellar records are having a tougher time beating the market lately

Updated April 25, 2013, 6:16 p.m. ET

Yen Bets Don’t Add Up for a Fund Giant

By GREGORY ZUCKERMAN

Renaissance Technologies LLC, a hedge-fund heavyweight, has been bruised in the market’s recent turbulence.

Two of the three hedge funds that the company makes available to outside investors have suffered sizable losses this month, largely due to the big drop in the Japanese yen, investors say.

At the same time, Renaissance continues to raise cash at a slower pace than some had expected. The firm manages about $6 billion of cash for outside investors—down from about $25 billion in 2007.Renaissance is perhaps the best-known “quantitative” hedge-fund firm, or one that employs sophisticated computers to guide its trading. James Simons, a mathematician and Cold War code breaker, founded the firm three decades ago and ran it until he stepped aside in 2010. The returns for its main fund topped those of almost every other investor in that period.

The firm is now run by Mr. Simons’ former lieutenants, Peter Brown and Bob Mercer.

The April losses amount to about $220 million, a fraction of the $23 billion or so that Renaissance manages in total. And overall Renaissance continues to score profits.

Still, the results raise questions about whether Renaissance is dropping back to join the rest of the hedge-fund pack, after years of outpacing the competition.

A $740 million fund called the Renaissance Institutional Futures Fund dropped more than 6% in the first 12 days of April and remains down about 6% for the month, making it among the worst-performing hedge funds in that period. For the year, the fund is down about 2% after losing 3.2% last year.

The Renaissance Institutional Diversified Alpha fund, a roughly $5.5 billion fund launched last year, dropped 3.4% during the first 12 days of April. The fund is up about 5% for the year, according to an investor, after a loss of about 1% last year.

A third Renaissance fund available to outsiders, the $7.3 billion Renaissance Institutional Equities Fund, rose about 0.5% in the first 12 days of April and is up nearly 12% for year, according to an investor. The fund has outperformed the Standard & Poor’s 500 since launching in 2005 with less volatility than the market.

Renaissance’s best-known fund, the $10 billion Medallion fund, is up around 10% so far this year, investors say, a tad below the approximately 11.4% gain for the S&P 500, including dividends, but above the nearly 4% gain for the average hedge fund so far this year, according to HFR, a data tracker. Medallion, which rose more than 20% last year, is only open to Renaissance employees.

The firm’s recent challenges underscore how even hedge funds with stellar records are having a tougher time beating the market lately.

The industry’s breakneck growth means funds manage more money than ever—an estimated $2.4 trillion, a sum that some say makes it harder for some funds to achieved outsize gains. John Paulson’s Paulson & Co., for example, has seen deep losses in some funds since the firm’s assets grew to $36 billion at the start of 2011.

Renaissance, founded in 1982 in East Setauket, N.Y., by Mr. Simons, trades in a different way than most investors. Besides its quantitative orientation, Renaissance operates in vast markets—such as Treasurys and currencies—that in theory can make it easier for big investors to find profits than simply trading equities. Mr. Simons once said that the funds could handle $100 billion in assets profitably.

While Renaissance is known as a fast-trading “quant” fund, and its Medallion fund holds some investments for as little as minutes or even seconds, it is not considered a “high-frequency trader,” or a trading firm that buys and sells in milliseconds. The group has received criticism for jolting financial markets in episodes such as the “Flash Crash” of 2010 and this week’s fake-tweet selloff.

Medallion has scored average annual returns of about 35%, after fees, since its inception in 1988, with only one money-losing quarter since 1995, a slight 0.5% drop in the first quarter of 1999, the firm has told investors.

Mr. Simons was a pioneer in using powerful computers to comb markets for trading opportunities. Renaissance isn’t the only firm using such strategies that has struggled of late.

“Trend-following quantitative models failed to capture [recent] trends in equities and currencies,” Ken Heinz, HFR’s president.

The average commodity trading advisory, or fund that focuses on futures trading, gained just 1.5% for the year, through April 22, according to HFR. These kinds of funds dropped 2.5% last year.