02.22.2013
By Terry Flanagan

Most Innovative Hedge Fund

A hedge fund may have fivestar research or cutting-edge technology, but for Two Sigma Investments LLC, it’s the combination of the two that produces results.

“In today’s age of ‘Big Data’ and globally interconnected markets, we believe combining rigorous financial market research with world-class computing power enables Two Sigma to capitalize on the best aspects of all styles of management,” said Carter Lyons, managing director and head of investor relations at Two Sigma.

Two Sigma, based about two miles north of the New York Stock Exchange in Manhattan’s SoHo neighborhood, manages about $11.4 billion across a range of absolute return and benchmark-relative products in global equities, futures, FX and derivatives. The hedge-fund company was founded in 2001 by co-chairmen John Overdeck and David Siegel, veterans of D.E. Shaw and Tudor Investment Corp. respectively, and Mark Pickard, who retired in 2006 and now holds the title of president emeritus.

Lyons describes Two Sigma as “a research and technology company that applies a rigorous scientific-method based approach to investment management.”

“Since its founding, the company’s vision has been to develop technological innovations that intelligently analyze the world’s financial data and deliver sustainable value for our clients,” Lyons
wrote in an e-mail to Markets Media. “Two Sigma launched its first fund in 2002 and over the last decade has successfully managed a range of absolute return products for a global, diversified investor base.”

“In 2008, the firm launched its first benchmark-relative equity fund and has since developed a suite of customizable products managed against a variety of benchmarks. We have delivered positive alpha to our investors every year since inception,” Lyons said. “Two Sigma is committed to the view that in order to consistently deliver alpha in liquid markets, one must process the vast amounts of data available to understand as many drivers of the market as possible.”

Two Sigma has offices in New York City, Houston, London, and Hong Kong. Information about Two Sigma’s corporate culture on its website suggests the firm could be located in Silicon Valley, California just as logically as in New York. “Technology is an integral part of the trading strategies, corporate functions and life in general at Two Sigma. To us, technology is a profit center, not merely a cost item, and it continues to be a driving force behind our company structure.”

“Two sigma is committed to the view that in order to consistently deliver alpha in Liquid markets, one must process the vast amounts of data available to understand as many drivers Of the market as possible.””- Carter Lyons, managing director and head of investor relations at Two Sigma

“We work in small teams to develop and improve analytical and measurement tools for the financial markets, and we encourage collaboration – a structure that seems rare in the financial field,” the web-site description reads. “In fact, many have observed that we look and feel a lot like a software firm.”

But ultimately, Two Sigma doesn’t develop technology to sell, rather it uses technology in trading and investing to aid in the quest to beat the market. “Two Sigma’s focus on continuous innovation and our ability to build outcome-oriented solutions has led to a sustained competitive advantage and positive alpha,” Lyons said.

Of Two Sigma’s more than 500 employees, more than 330 work in research and development, and 70% of the R&D staff was recruited from fields other than finance. Two Sigma researchers and developers “focused on the important innovative projects we undertake in order to constantly seek improvement in our portfolios,” Lyons said. “This team includes multiple International Math Olympiad medalists (gold, silver and bronze), a Unix lifetime achievement recipient, and MIT-trained experts in artificial intelligence.”

Related articles