Two Sigma Raises $3.3 Billion for New Macro Hedge Fund

Updated on

Two Sigma, an investment firm that uses computer models to bet on markets, raised $3.3 billion for a macro hedge fund in one the largest new pools of such capital raised since the 2008 financial crisis.

Investors sought out the fund, which can bet on macroeconomic trends by investing in equities, fixed income, commodities and currencies, because it seeks to generate returns not tied to the market, said Nobel Gulati, chief executive officer at Two Sigma Advisers LLC, the part of the New York-based firm that manages money for pension plans, sovereign-wealth funds and other institutional clients.

Two Sigma, which was founded in 2001 by David Siegel, the former chief technology officer at Tudor Investment Corp., and John Overdeck from D.E. Shaw & Co., uses mathematical models to decide when human traders should buy and sell securities, derivatives and other investments. The firm oversees $23 billion and has been one of the most successful managers that uses quantitative strategies to drive investments.

Its Two Sigma Compass Cayman Fund gained almost 17 percent this year through September, according to a person briefed on its returns, who asked not to be identified because the information is private. That fund has generated an annualized return of more than 15 percent since its 2005 inception, the person said. It has been closed to new investment since 2010.

Perrin Wheeler, a spokeswoman for Two Sigma, declined to comment on the firm’s performance.

Investors Pulled

The firm gathered the money as investors pulled $20.7 billion from macro and quant-driven strategies this year, according to data from Chicago-based Hedge Fund Research Inc., as a lack of volatility in financial markets stunted performance. In the third quarter, investors withdrew $11.1 billion from such funds.

Some macro funds also struggled this month. Fortress Investment Group LLC said today its macro fund was down 4.9 percent this year through September and 9.3 percent as of Oct. 24. Robert Citrone’s $15 billion Discovery Capital Management LLC, slumped 11 percent this month through Oct. 17 and is down 22 percent this year.

“The third quarter was a challenging period for macro managers,” Philippe Ferreira, the head of research for Lyxor Asset Management Inc.’s managed-account platform, wrote in a note to clients this month.

Griffin Raising

Hedge-fund assets overall have grown to a record $2.8 trillion this year from $2.6 trillion at the end of 2013, according to data compiled by HFR, with some of the largest firms gathering most of the new money. Ken Griffin’s Citadel LLC raised $4.5 billion in the first nine months of the year, according to a person with knowledge of the matter. Dan Loeb’s Third Point LLC raised more than $2 billion after being closed to new investors since 2011.

Since early 2005, the average hedge fund has gained 2.8 percent on an annualized basis, according to data compiled by Bloomberg. The Bloomberg Global Aggregate Hedge Fund Index rose 2.3 percent in the first nine months of this year.

The new Two Sigma fund, which started July 1 with almost $2 billion, uses the same models as the $5 billion Two Sigma Compass strategy, the person said, but will hold investments for twice as long. Geoffrey Duncombe, who joined Two Sigma in 2008, is the portfolio manager for the new fund.