Have Mercer! The money man who helped the GOP win

Robert Mercer
Andrew Toth | Getty Images
Robert Mercer

The big money behind the Republican surge Tuesday came from a host of familiar billionaires.

Mega industrialists Charles and David Koch, powerful investor Paul Singer and casino magnate Sheldon Adelson all gave millions of dollars to support conservative candidates, helping the GOP take control of the Senate and add to their House majority.

But there's one name on the top 10 list of midterm donors most people won't recognize: Robert Mercer.

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Better known as "Bob," Mercer is co-head of Renaissance Technologies, a secretive hedge fund firm that manages $25 billion using fast-trading computer programs from its headquarters in a quiet hamlet on Long Island.

Thanks both to looser campaign finance rules and his promotion to help lead one of the largest hedge funds in the world, Mercer has quietly become a major player in politics since 2010. He donated more than $8 million this election cycle alone, putting him behind only Singer as the second-largest Republican booster. And Mercer was fourth overall regardless of party after hedge fund manager-turned environmentalist Tom Steyer and former New York City mayor Michael Bloomberg, according to data compiled by the Center for Responsive Politics.

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Big donations included a $2.5 million check to Kochs' Freedom Partners Action Fund—more than what the Koch bothers themselves gave to it—a "super" political action committee that spent $24 million to support Republicans including winners Joni Ernst in Iowa and Cory Gardner in Colorado. Super PACs were made possible by the Supreme Court's 2010 decision in Citizens United, which allows them to accept unlimited contributions from corporations and individuals as long as they don't coordinate directly with a campaign.

Mercer also gave $1 million or more each to super PACs Club for Growth Action, which worked to limit the size of government by backing conservative candidates like Arkansas Senate winner Tom Cotton; Ending Spending Action Fund, which also focused on small government by attacking Georgia Senate loser Michelle Nunn, a Democrat; and John Bolton Super PAC, a group supporting the potential GOP presidential candidate and other politicians who are seen as strong on defense, such as North Carolina Senate winner Thom Tillis, a Republican.

Mercer's family foundation, technically run by his daughter Rebekah, has also supported a slew of conservative causes. Donations in 2012 included the Media Research Center, which tracks perceived liberal bias in the media; the Oregon Institute of Science and Medicine, which denies man-made climate change; and the Heartland Institute, which promotes "free-market solutions to social and economic problems".

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Big checks, few words

Mercer is little known by design.

While he has cut big checks to candidates and causes he believes in, Mercer avoids the social and charity circuit common to wealthy financiers. Few pictures of him exist, except for some uncomfortable shots at poker tournaments or scientific charity events organized by his former boss James Simons, the billionaire founder of Renaissance who retired as CEO in January 2010.

A model train aficionado, Mercer doesn't even like to speak, at least in public.

"I don't usually talk about myself so it's not a comfortable thing," Mercer said in a rare speech this summer in Baltimore to accept a lifetime achievement award from the Association for Computational Linguistics. The 40-minute acceptance talk, he said, was "more than I typically talk in a month … It's quite a challenge."

A spokesman for Renaissance, Jonathan Gasthalter of high-powered public relations shop Sard Verbinnen, declined to comment on behalf of Mercer, Simons and the firm.

Mercer's main language is code, a lifelong passion that has made him likely worth hundreds of millions of dollars. "What I am is simply a computer programmer," Mercer said in his ACL speech. "I've taken great pleasure in programs that do remarkable things."

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Growing up with computers

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Mercer was born in San Jose, California, on July 11, 1946 and grew up in New Mexico. According to his speech, he was exposed to computers as a 10-year-old, when his father explained the workings of an IBM 650, the first mass-produced computer that used a magnetic drum and punch cards to perform up to 5,000 multiplications per minute.

He got to work directly with computers the summer after his senior year in high school while representing New Mexico at the National Youth Science Camp in West Virginia, where he learned to program on early software known as Fortran (from "FormulaTranslator").

Mercer went on to get a bachelor's degree in physics and mathematics from the University of New Mexico at Albuquerque in 1968. There were no computer sciences courses at the school, but Mercer got a side job writing programs at the Kirtland Air Force Base's weapons lab.

That government job made a poor impression on him.

"One of the most important goals of government-financed research is not so much to get answers as it is to consume the computer budget," he said in the speech. "[It] left me ever since with a jaundiced view of government-financed research."

But overall the weapons lab work taught Mercer that he "really loved computers." So he headed to get a Ph.D. in computer science from the University of Illinois at Urbana, where he helped a professor, Dan Slotnick, on the Illiac IV, then the world's fastest computer.

Mercer graduated in 1972 and took a job at IBM. He worked on speech recognition in the company's Watson Research Center in New York suburb Yorktown Heights. During his 20 years at IBM, he did pioneering work on language using statistics, both getting computers to translate speech to text and translating between languages.

"The impact of their work was revolutionary," ACL said in a statement on its lifetime achievement award. "The probabilistic approaches to computational linguistics that Bob and colleagues pioneered now dominate the field of machine translation, and provide the underpinning of many of the tools that people now regularly use."

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A lucrative move

Robert Mercer playing poker in 2012.
BJ Nemeth | World Poker Tour
Robert Mercer playing poker in 2012.

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.

James Simons of Renaissance Technologies in 2011.
Amanda Gordon | Bloomberg | Getty Images
James Simons of Renaissance Technologies in 2011.

Mercer and Brown were virtually unknown on Wall Street before Simons retired and gave them leadership of the firm in 2010.

They've slowly started to engage more with the outside world. Brown said that their October 2013 joint appearance at an event celebrating their machine translation work was the first business trip either of them had taken since going to a conference in 1992. Brown said in the Hopkins speech that he still sleeps at the East Setauket, New York-headquarters three days a week.

The job doesn't involve as much coding today given Mercer's management role for the eighth largest hedge fund in the U.S. "We end up probably writing more legal documents than computer programs," Brown said in his talk.

Regardless, the hard work has paid off. Mercer earned an estimated $125 million in 2011, $100 million in 2012 and $115 million in 2013, according to hedge fund publication Alpha. Mercer and Brown each own less than 5 percent of Renaissance. Simons, who supports Democrats, remains the principal shareholder and is worth $12.5 billion, according to Forbes.

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Some bad press

Despite a purposefully reclusive life, Mercer has gotten attention several times for reasons he would probably prefer to keep private.

In July 2013, members of his household staff sued for alleged underpayment of overtime hours and pay "demerits" for things like "failing to change the razor blades in the shaver" or "failing to level pictures," according to the complaint. The case was settled out of court and is now closed.

More recently Renaissance was accused by a U.S. Senate investigative body of avoiding leverage limits and more than $6 billion in taxes on behalf of clients through the use of structured financial products known as basket options. Co-CEO Brown was hauled before Senators at a July hearing where he defended Renaissance's practices.

In a statement in July, Renaissance spokesman Gasthalter said: "We believe that the tax treatment for the option transactions being reviewed by the [Permanent Subcommittee on Investigations] is appropriate under current law." He added: "These options provide Renaissance with substantial business benefits regardless of their duration. The IRS already has been reviewing these option transactions for over six years, and Renaissance has cooperated fully with both reviews."

Renaissance has been proactive in Washington. The firm has spent between $200,000 and $800,000 each year lobbying since 2010 on tax and accounting issues, according to data compiled by the Center for Responsive Politics.

Top midterm donors to outside groups

Rank
Donor
Total
% to
Conservatives
% to
Liberals
1 Thomas Steyer $73,725,000 0% 100%
2 Michael Bloomberg $20,011,894 2% 98%
3 Paul Singer $9,333,537 100% 0%
4 Robert Mercer $8,070,000 100% 0%
5 Fred Eychaner $7,900,000 3% 97%
6 Joe Ricketts $6,595,000 100% 0%
7 Sheldon & Miriam Adelson $5,000,000 100% 0%
8 Richard Uihlein $4,235,000 100% 0%
9 George Soros $3,560,000 0% 100%
10 Robert Perry $3,100,000 100% 0%
Source: Center for Responsive Politics