Hedge Funds’ Tech Metamorphosis Seen in Citadel’s Microsoft Hireby and
Bridgewater, Point72, Two Sigma have poached from tech giants
Quant hedge funds proved their value following Brexit vote
Silicon Valley watch out. The finance industry is coming after your top managers.
Hedge funds are poaching top executives from tech giants to manage their transformation into computer-driven firms full of engineers and mathematicians. Citadel’s hiring of Microsoft Corp.’s Kevin Turner follows big moves in the past year by Two Sigma Investments, which brought on Google Inc.’s Alfred Spector, and Bridgewater Associates, which tapped Apple Inc.’s Jon Rubinstein.
These executives are helping banks and hedge funds morph into companies that rely on complex computers, big data analysis and artificial intelligence to get an edge in investing. Doug Haynes, president of Point72 Asset Management, and Lloyd C. Blankfein, head of Goldman Sachs Group Inc., last year described their companies as technology firms.
"As the finance world becomes increasingly automated, firms have got to think more and more like technology businesses,” said Jason Kennedy, chief executive officer of Kennedy Group, a London-based recruitment firm for the finance industry. “The competitive advantage that Wall Street will have will be on the back of software.”
Citadel, the investment firm run by Chicago billionaire Kenneth Griffin, announced Thursday the hiring of Turner, the chief operating officer at Microsoft, to run its securities unit.
Citadel has long invested in technology, including its options-market-making business, which facilitates client transactions, starting in 2002. Last month the firm hired Steve Lieblich, a three-decade Morgan Stanley technology veteran, as chief technology officer for its hedge-fund business.
Griffin also brought on L.J. Brock from software firm Red Hat Inc. in April as chief people officer, and last July picked Dolly Singh, who had worked at Elon Musk’s Space Exploration Technologies Corp., as an interim head of recruitment, Citadel said.
"It’s no surprise that he would do something like this," Alan Guarino, vice chairman at executive search firm Korn/Ferry International, said Thursday on Bloomberg Radio about Griffin hiring Turner. "He’s been one of the pioneers in investing and supporting the electronification of trading."
Turner, 51, who was once in the running to replace former Microsoft head Steve Ballmer, had been searching for a CEO job for several years. At Microsoft, Turner oversaw more than 51,000 employees and led sales and marketing efforts for products from Office to Windows to server software. He rose up the ranks first at Wal-Mart Stores Inc. and built a reputation for bringing discipline to operations and delivering motivational speeches with folksy maxims at sales events at Microsoft.
Boldface names like Steve Cohen and Ray Dalio also have been expanding their quant capabilities. Point72, which invests Cohen’s wealth, last year hired Timothy Shaughnessy, a former executive at IBM, as COO. The $11 billion firm has added a big-data research arm, hiring coders to build computer models that collect publicly available data and analyze it for patterns.
Dalio’s Bridgewater in March tapped Rubinstein, a long-time deputy of Apple co-founder Steve Jobs, as co-CEO. The $150 billion firm has also hired programmers and engineers to expand its use of artificial intelligence, which deploys algorithms to make predictions based on statistical probabilities.
Brexit Pay Day
The investment in engineers and software paid off in the U.K. vote to leave the European Union, which sent stock markets reeling. Brevan Howard Asset Management used artificial intelligence tech to gauge sentiment on social media in the run-up to the referendum, while Discovery Capital Management developed a mathematical model to track voting results from districts.
The day after the June 23 referendum, computer-driven hedge funds generally outperformed human traders, notching one-day gains of more than 4 percent.
Investors have poured into quantitative funds while many traditional stock picking firms have suffered. Two Sigma manages $35 billion compared with $24 billion at the end of 2014. Renaissance Technologies has $32 billion in assets compared with $27 billion in October.
Leon Cooperman, whose has managed a hedge fund for 25 years, in May said complex computer models are among the requirements needed to compete in the industry today. Cooperman, 73, said he’s not willing to embrace the trend.
Not long ago hedge funds raided banks for leaders, luring them with higher payouts. Guarino of Korn/Ferry recalls meeting with a financial markets company eight years ago to discuss CEO succession plans. He asked board members where leaders might come from in five years. They suggested banks like Goldman Sachs and JPMorgan Chase & Co.
“I said, ‘I’m surprised you didn’t say Microsoft,”’ Guarino said. “Half the board laughed, and the other half looked at me and said -- Oh, yeah, wow.”