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Renaissance Institutional Equities Fund MONTHLY COMMENTARY

June 2009 (page 1)


June results were strong, with the domestic B class returning 4% Gross Sector Allocation§
while the S&P 500 posted at results. The disproportionate spread Basic Materials -13.6% 3.3%
between the returns of high and low beta stocks that hurt RIEF in the
Energy -7.7% 2.1%
previous three months did not continue in June.
Consumer Noncyclicals -0.7% 15.9%
Research progressed at a gratifying pace in June. Two signals
Consumer Cyclicals -10.6% 11.9%
were approved for trading. One of these was the promising signal
mentioned in last month’s letter, which has now been implemented, Consumer Services -4.0% 4.6%

and the other was a more recent discovery, which is expected to be


Industrials -5.8% 1.3%
added in the coming week.
Utilities -0.1% 3.3%
We consistently emphasize that RIEF is not intended to be a tracking
Transportation -0.6% 6.9%
vehicle but instead to provide diversication from equity indices.
This month’s strong performance provides another example of this Healthcare -8.0% 31.0%

diversication. The next page provides statistics that offer context for Technology -6.6% 49.3%
thinking about correlations during the last twelve months.
Telecommunications -1.1% 15.1%

Commercial Services -1.9% 13.3%


Gross Long/Short Return Attribution†
Financial -13.4% 16.1%
Long Portfolio Return 3.7%
-25% -15% -5% 5% 15% 25% 35% 45% 55%
Short Portfolio Return 0.3%
§ Long and short gross sector weightings are for the static portfolio
Total RIEF Return 4.0%
at the close of 6/30/09 using the most current Barra model.

Monthly Statistics**
RIEF Onshore LLC RIEF Offshore LP
Series A Series B Series C Series D Series A Series B Series C Series D S&P 500

June Return 3.87% 4.01% 3.98% % 3.80% 3.93% % 3.93% 0.20%


* -2.80% -1.94% -3.45% % -3.52% -2.63% % -4.55% -5.25%
Annualized Return
Standard Deviation* 10.79% 10.46% 11.25% % 10.81% 10.50% % 11.62% 16.89

Delta*‡ 2.45% 3.31% 1.80% % 1.73% 2.62% % 0.70% -

Risk/Return Since Inception** One-Year Rolling Standard Deviation**


0% 30%
S&P 500
-1%
RIEF LLC, 25%
-2%
Series B
Annualized Return

-3%
Russell 2000 20%
-4%
Growth
Russell
-5% 15%
S&P 500 1000
-6%
-7% 10%
Russell 2000 RIEF LLC - Series B
-8%
Value
5%
-9%
-10%
0%
0% 5% 10% 15% 20% 25% 30%
May-07
Dec-06

Oct-07

Aug-08

Jun-09
Jan-09
Mar-08
Jul-06

Annualized Standard Deviation

* Since Inception, 8/1/05.


† Gross of fees for the month of June 2009.
** Charts based on monthly data and are net of fees for a continuing investor. Some series were not populated with investors since inception. The results displayed are,
nonetheless, based on actual trading, gross prots being adjusted in each case by the applicable fees.
‡ The difference in return of RIEF and the S&P 500 since inception.

Renaissance Technologies LLC 800 Third Avenue, New York, NY 10022-7604 p: (212) 821-1502 f: (212) 848-1033 e: rief@rentec.com
Renaissance Institutional Equities Fund MONTHLY COMMENTARY

June 2009 (page 2)


Table 1 shows the correlations to the S&P 500 index of RIEF’s Table 1: Correlations to S&P 500 (1/1/1992-12/31/2005)
simulation as well as various equity, xed income and commodity Russell Russell Russell MSCI S&P New- Inv- High
Russell Russell MSCI RIEF
indices from 1/1/1992–12/31/2005.1 1000 2000
Mid- 3000 3000
EAFE
Emrg GSCI Edge Grade Yield
Sim
Cap Value Growth Mkts Comm CTA Bond Bond
Table 2 shows correlations for those same indices over the last
1.00 0.80 0.89 0.90 0.93 0.33 0.25 -0.03 -0.14 -0.08 0.27 0.64
year, from 7/1/2008–6/30/2009.2
It is often said that in a crisis all correlations move to 1 or -1.
Table 2: Correlations to S&P 500 (7/1/2008-6/30/2009)
Comparing Tables 1 and 2 shows nothing so extreme for the
Russell Russell Russell MSCI S&P New- Inv- High
recent crisis, but it is noteworthy that all of the correlations have Russell Russell MSCI RIEF
Mid- 3000 3000 Emrg GSCI Edge Grade Yield
1000 2000 EAFE Live
become bigger in absolute value. Among the US equity indices, Cap Value Growth Mkts Comm CTA Bond Bond

there are some that had traditionally provided at least a little bit 1.00 0.94 0.98 0.99 0.99 0.48 0.54 0.45 -0.39 0.16 0.32 0.67
of diversication from the S&P but all have been almost 100%
correlated with the S&P in the last twelve months.3 International, 3
Most of the increase in correlation between the S&P and the other US equity
particularly emerging markets, equities have been a poorer indices took place before the nancial crisis and therefore cannot result from
diversication than usual in the last year as have investment it. But this does not detract from the fact that RIEF maintained its correlation
target during epochs when US equity indices were all very highly correlated.
grade bonds and, especially, commodities. Interestingly, the 4
In fact, the correlation is so close to its historical average that some luck is
CTA index correlation has become more negative, making it less involved. There are certainly twelve month periods of perfectly ordinary market
independent of the S&P in a statistical sense but increasing the conditions where RIEF’s correlation to the S&P 500 strays much further from its
historical average.
risk benets of this asset class for portfolios with large S&P beta. 5
RIEF actually has exposure to foreign equities listed on US exchanges (see
Turning to RIEF, two facts are noteworthy. First, given its investable Exposure graph below) but this does not explain RIEF’s ability to maintain its
low correlation to the S&P 500 during the recent crisis. A cap weighted index
universe, RIEF maintained an extremely low correlation to the of foreign equities in RIEF’s investable universe shows a correlation of 95% to
S&P 500 during both epochs. The Fund consistently provides the S&P 500 over the last twelve months.
better diversication than standard US equity indices. Second, Note: Although too complicated to explain in this letter, more mathematically
inclined clients might be interested to know that a similar but fuller story comes
RIEF kept its correlation to the S&P 500 extremely close to its from making one-factor models of the full correlation matrices over the two
low target correlation during a time when this was obviously very epochs. The factor turns out to be an equity factor and loadings to that factor
difcult to accomplish given the data across indices highlighted increase just as one might expect from the above results. The advantage of
the one factor model is that it explains a phenomenon not directly addressed
above.4 During the crisis of the past twelve months, RIEF has above. Without distinguishing the S&P 500, correlations between most asset
provided almost as much diversication from the S&P 500 as classes have increased. For example, US investment grade bonds and emerging
market equities have a historical correlation of only 4% but have had a 41%
either emerging market equities or commodities, a rather correlation in recent times.
impressive result for a fully invested portfolio of US equities.5 Indices used: Russell 1000 Index, Russell 2000 Index, Russell Mid-Cap Index,
1
The epoch ended in 2005 because the RIEF simulation, whose monthly returns Russell 3000 Value Index, Russell 3000 Growth Index, MSCI EAFE Index, MSCI
are provided to clients, ended in 2005. Analysis based on daily returns. Emerging Markets Index, FINRA-Bloomberg US Investment Grade Bond Index,
FINRA-Bloomberg US High Yield Bond Index, S&P GSCI Commodity Index and
2
Using the live RIEF track record-gross of fees. Analysis based on daily returns. NewEdge CTA Index.

Quarterly US/Non-US Exposure† Three-Year Rolling Empirical Beta‡


1 1.0
0.9
0.8 0.8
0.7
0.6
0.6
0.5
0.4
0.4
0.3
0.2
0.2

0 0.1
Q3 05

Q4 05
Q1 06
Q2 06

Q3 06

Q4 06
Q1 07

Q2 07

Q3 07

Q4 07
Q1 08

Q2 08

Q3 08

Q4 08
Q1 09

Q2 09

0.0
May-09
Mar-09
Feb-09

Apr-09

Jun-09
Jan-09
Aug-08

Nov-08

Dec-08
Sep-08

Oct-08
Jul-08

U.S. non-U.S.

† As of each quarter-end. Non-US includes ADRs and foriegn direct listings.


‡ Relative to the S&P 500 based on daily gross of fees log returns.

Renaissance Technologies LLC 800 Third Avenue, New York, NY 10022-7604 p: (212) 821-1502 f: (212) 848-1033 e: rief@rentec.com

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