In 1993, Mercer and IBM colleague Peter Brown got a recruitment letter from Renaissance. They initially threw the letters out, according to rare October 2013 public comments by Brown at Johns Hopkins University, but ultimately decided to leave the IBM job at which they were "very happy." Mercer was struggling with paying college tuition bills for his three daughters, according to Brown, and Renaissance was offering 50 percent more pay.
Simons—a former government defense code breaker, chairman of the mathematics department at Stony Brook University and a prize-winning mathematician—needed coding help and Mercer and Brown provided it.
Renaissance, which employs about 75 science Ph.D. recipients, looks for unusual market patterns and then writes computer codes to trade on them. Little about how the firm trades has been made public since it was founded in 1982, but one example is using weather patterns. Renaissance bought data on clouds and, according to co-CEO Brown in the Hopkins talk, found that markets are less likely to rise on cloudy days, a pattern then confirmed by looking at data from Paris, Milan, Tokyo and Sao Paulo and New York.
Whatever the technique, Renaissance has produced spectacular returns in its oldest fund, Medallion. Medallion was initially open to outside investors, but in 1993 turned into a vehicle for Renaissance employees and their families. Several media reports have put its return at an annualized rate of about 35 percent since it went private. The number could not be independently verified.
Two new funds launched in the mid-2000s to great fanfare. But they've produced more humble returns for pensions, endowments and other large investors. The Renaissance Institutional Equities Fund has produced annualized returns of 8.35 percent net of fees from August 2005 through September 2014, according to performance data obtained by CNBC.com. And the Renaissance Institutional Futures Fund has returned 3.53 percent annually net of fees from October 2007 through September.
Mercer and Brown worked exceptionally hard at Renaissance.
"Because everything is hush-hush, we lost all contact with the outside world. We went into a cocoon and focused all our energy on just staying afloat," Brown said in the Hopkins speech of the duo's early days at the hedge fund firm.
A former colleague of Mercer's at Renaissance remembers him as "very conservative" and a "very strong" coder who effectively converted his work on information theory from language processing to investing. "The sort of … analysis used there is highly applicable to a lot of modern statistical approaches to markets," said the person, who asked not to be named.