Two Sigma

Last updated

Two Sigma Investments, LP
Type Private
Industry Hedge fund
Founded2001;22 years ago (2001)
Founders
Headquarters New York, New York, U.S.
Products Hedge fund
AUM US$60 billion (2023) [1]
Number of employees
c. 2,000 (2023) [1]
Website twosigma.com

Two Sigma Investments, LP is a New York City-based hedge fund that uses a variety of technological methods, including artificial intelligence, machine learning, and distributed computing, for its trading strategies. [2] The firm is run by John Overdeck and David Siegel. [2] [3]

Contents

History

Two Sigma Investments was founded in 2001 by John Overdeck, David Siegel and Mark Pickard. [2] [4] Siegel is a computer science Ph.D. from the Massachusetts Institute of Technology who worked for Tudor Investments, and Overdeck is an International Mathematical Olympiad Silver Medalist who subsequently studied mathematics at Stanford University and worked for Jeff Bezos in Amazon.com's early days. [5] The two met at D. E. Shaw & Co., where Siegel held the position of Chief Information Officer and Overdeck the position of managing director. [6] They left to co-found Two Sigma in 2001 with seed funding from Paul Tudor Jones. [5] [7] Pickard served as the President of the firm from its inception until his retirement in 2006. [6] [5]

According to Two Sigma, the firm's name was chosen to reflect the duality of the word sigma. A lower case sigma, σ, designates the volatility of an investment's return over a given benchmark, and an upper case sigma, Σ, denotes sum. By adding together the volatilities of individual positions measured against the benchmark, Two Sigma can amplify forecast signals, the company's website says. [6] [8]

In October 2013, Two Sigma Private Investments announced that it was joining with Stephen Hannahs to form Wings Capital Partners, a commercial aviation private equity, investment, advisory and financing company. [9] In July 2014, it was announced that Simon Yates, Citigroup's global head of equity derivative sales and trading, left the bank to join Two Sigma. [10] [11]

In February 2014, Forbes reported that former Two Sigma employee Kang Gao, aged 29, was prosecuted by the Manhattan District Attorney and is accused of using a remote-access device to view Two Sigma's proprietary trading models and emailing this information to his personal email account, lifting quantitative trading strategies, trading models, a marketing presentation, and a scientific white paper. [12] The case, New York. v. Kang Gao, led to Gao receiving 8 months in jail as of October 2014. [12] In February 2015, Gao pleaded guilty to "illegally accessing and duplicating proprietary and confidential information related to the firm's trading methods." [13] [14]

In 2016, Two Sigma Investments ranked 11th on Penta's Top 100 Hedge Funds. [15]

As of early 2017, Two Sigma had used crowdsourcing options to find trading signals. [16] By March 2017, the fund was running a competition on Kaggle to code a trading algorithm. [17]

The fund managed around $8 billion in November 2011, $23 billion in October 2014, and $32 billion by the end of 2015. [18] [2] [19] [20] As of October 2017, the fund had assets reaching more than $50 billion. [21] In May 2019, the fund had assets reaching $60 billion. [22] This number slightly dropped to $58 billion in October 2020, after Two Sigma saw losses in its risk premia, absolute return, and macro funds. [23]

Two notable new challenges for the firm became public in 2023. In March 2023, the firm took the rare step of discussing personnel discord in the corporate suite in a filing to investors. It seems that relations between co-founders John Overdeck and David Siegel collapsed over the course of the previous years, and they were no longer on speaking terms; yet both continued to own a large segment of the company with no sign of being willing to sell their stake. The relationship was so contentious that the firm stopped holding all-hands meetings, due to the pair's unwillingness to coordinate and address employees or investors together. Additionally, Overdeck was in the process of a messy and public divorce, with his wife accusing him of hiding the family's assets in a court filing. [24] Later in 2023, The Wall Street Journal reported in October 2023 that a senior vice president had made unauthorized changes to Two Sigma's trading models, leading to different-than-expected investment results, prompting the U.S. Securities and Exchange Commission to open an investigation. Two Sigma remediated its clients who were subscribed to specific funds that suffered losses. [1]

Technology

At the end of 2016, Two Sigma Investments introduced an artificial intelligence challenge called Halite. Halite is a programming game inviting coding enthusiasts to build smart bots whose goal is to gain control of a virtual grid. [25] [26] [27] Due to the success of Halite I, Two Sigma decided to develop a second season of Halite called Halite II. This ran from October 2017 to January 2018, and in this version players competed for control of planets using ships. [28] In October 2022, Two Sigma became a Chainlink node operator to help expand the use cases of blockchain-based hybrid smart contracts. [29]

Fund information

Two Sigma has been noted in the business press for its unusually high rate of return, comparable to its older and more mature competitors D. E. Shaw & Co. and Renaissance Technologies. [2] [30] In October 2014, Two Sigma had raised $3.3 billion for a macro hedge fund in one of the largest new pools of such capital raised since the 2008 financial crisis. [19]

There are a few specialized divisions which focus on private investments, venture capital investments (with a focus on companies operating in the realm of data science), advising institutional clients, and running a high frequency broker-dealer. [31] [32] [19]

Related Research Articles

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References

  1. 1 2 3 Zuckerman, Gregory; Chung, Juliet (29 October 2023). "Hedge Fund Two Sigma Is Hit by Trading Scandal". The Wall Street Journal. Retrieved 29 October 2023.
  2. 1 2 3 4 5 Vardi, Nathan (11 July 2014). "Two Sigma Investments Is Having a Great Year And Becoming A Hedge Fund Powerhouse". Forbes . Retrieved 31 July 2014.
  3. ↑ The World's 100 richest Hedge Funds, Bloomberg Markets
  4. ↑ "Two Sigma Investments". Bloomberg BusinessWeek . Archived from the original on 9 July 2009. Retrieved 31 July 2014.
  5. 1 2 3 Juliet Chung; Gregory Zuckerman (20 June 2023). "Inside the Escalating Feud at One of Wall Street's Biggest Hedge Funds". The Wall Street Journal . ISSN   0099-9660. Wikidata   Q119797854 . Retrieved 20 June 2023.
  6. 1 2 3 "About". Two Sigma Investments. Retrieved 31 July 2014.
  7. ↑ Taub, Stephen (28 June 2019). "Inside the Geeky, Quirky, and Wildly Successful World of Quant Shop Two Sigma". Institutional Investor. Retrieved 16 January 2020.
  8. ↑ Nathan Vardi (29 September 2015). "Rich Formula: Math And Computer Wizards Now Billionaires Thanks To Quant Trading Secrets". Forbes . ISSN   0015-6914. Wikidata   Q119798833 . Retrieved 20 June 2023.
  9. ↑ "Stephen Hannahs, Two Sigma Private Investments Join to Create Wings Capital Partners, a Commercial Aviation Private Equity, Investment, Advisory and Financing Company". Yahoo! Finance . 7 October 2013. Retrieved 31 July 2014.
  10. ↑ Dugan, Kevin (2 July 2014). "Citi loses equity-derivatives chief to Two Sigma Investments". New York Post . Retrieved 31 July 2014.
  11. ↑ Dakin Campbell (2 July 2014). "Citi Equity Derivatives Head Yates Said to Join Two Sigma". Bloomberg News . Wikidata   Q119798279 . Retrieved 20 June 2023.
  12. 1 2 Bishop, Stewart (14 October 2014). "Ex-Two Sigma Analyst Can't Dodge IP Trial, But Bail Is Cut". law360.
  13. ↑ "DA VANCE: KANG GAO PLEADS GUILTY TO COPYING CONFIDENTIAL TRADING INFORMATION FROM HIS FORMER EMPLOYER" (Press release). The New York County District Attorney's Office. 24 February 2015. Retrieved 16 June 2015.
  14. ↑ Dolmetsch, Chris (24 February 2015). "Former Two Sigma Analyst Gao Pleads Guilty to Software Theft". New York: Bloomberg L.P. Retrieved 16 June 2015.
  15. ↑ "Penta Top 100 Hedge Funds". Barron's. 17 June 2017. Retrieved 5 November 2017.
  16. ↑ Wigglesworth, Robin (17 October 2017). "Cohen-backed Quantopian starts fund for outside investors". The Financial Times . United Kingdom. Retrieved 29 October 2017.
  17. ↑ Wigglesworth, Robin (8 March 2017). "Hedge funds adopt novel methods to hunt down new tech talent". The Financial Times . United Kingdom. Retrieved 29 October 2017.
  18. ↑ Copeland, Rob (1 November 2011). "Two Sigma readies new global equity fund" . Retrieved 31 July 2014.
  19. 1 2 3 Simone Foxman (30 October 2014). "Two Sigma Raises $3.3 Billion for New Macro Hedge Fund". Bloomberg News . Wikidata   Q120052780 . Retrieved 28 June 2023.
  20. ↑ Vardi, Nathan. "Top Quant Hedge Funds Stand Out With Good 2015". Forbes. Retrieved 25 June 2016.
  21. ↑ Wigglesworth, Robin (23 October 2017). "Two Sigma rapidly rises to top of quant hedge fund world". The Financial Times . United Kingdom. Retrieved 29 October 2017.
  22. ↑ Saacks, Bradley. "'It's a cat-and-mouse game': The head of technology at $60 billion hedge fund Two Sigma explains why cybersecurity is a bigger challenge than AI". Business Insider. Retrieved 18 June 2019.
  23. ↑ Katia Porzecanski; Hema Parmar (17 November 2020). "Renaissance, Two Sigma Drop as Quants Navigate Chaos". Bloomberg News . Wikidata   Q119797909 . Retrieved 20 June 2023.
  24. ↑ Farrell, Maureen (6 November 2023). "Warring Billionaires, a Rogue Employee, a Divorce: One Hedge Fund's Tale of Woe". The New York Times. Retrieved 6 November 2023.
  25. ↑ "Two Sigma Announces Public Launch of Halite, A.I. Coding Game". Cornell Tech. 2 November 2016. Retrieved 10 September 2017.
  26. ↑ "Halite: An AI Programming Challenge | Hacker News". news.ycombinator.com. Retrieved 10 September 2017.
  27. ↑ "Introducing Halite: Our Limited Release AI Challenge". Two Sigma. Retrieved 10 September 2017.
  28. ↑ "Halite II". Halite. Retrieved 23 January 2018.
  29. ↑ "Hedge Fund Two Sigma to Provide Data to Blockchain Information Network Chainlink". Business Insider. Retrieved 6 October 2022.
  30. ↑ "Two Sigma Investments/Two Sigma Advisers" . Retrieved 31 July 2014.
  31. ↑ "Two Sigma Private Investments" . Retrieved 31 July 2014.
  32. ↑ "Two Sigma Ventures" . Retrieved 31 July 2014.
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