Founders Clash At Hedge Fund Giant Two Sigma
It’s not every day we get to see corporate feuds coming out in the open, especially in the relatively secret…
It’s not every day we get to see corporate feuds coming out in the open, especially in the relatively secret world of quantitative hedge funds. But rare things happen, and it turns out there’s a major feud at Two Sigma Investments, a New York-based fund with nearly $60bn of assets under management.
A recent Two Sigma securities filing highlighted something peculiar under “material risks.” The firm’s founders, David Siegel and John Overdeck, have major disagreements on organizational strategy and oversight.
- According to the filing, the management committee — which includes only Siegel and Overdeck — has “been unable to reach agreement on a number of topics,” including “defining roles, authorities and responsibilities for a range of C-level officers.”
- Disagreements among founders and C-level executives aren’t uncommon in the finance sector, but it’s rare to reach a level warranting disclosure as a material risk to prospective investors.
According to the Wall Street Journal, the rift between both founders runs deep. They have clashed on many important decisions, including succession planning and delegation of duties. In early 2022, a group of senior employees under Overdeck’s team reportedly threatened to resign if Siegel didn’t step back. Siegel refused, and the group didn’t follow through with their threat.
Siegel and Overdeck seem to have enjoyed a close relationship but have gradually drifted apart. Now, “it’s two tribes” at Two Sigma, with each founder having a group of loyalists, the Journal reported.
- Siegel and Overdeck launched Two Sigma Investments in 2001. Their firm morphed into one of the biggest and most successful quant hedge funds, referring to funds that rely on mathematical and statistical analysis for investment decisions. Two Sigma’s computers gather and analyze floods of information and invest based on patterns detected in the data.
- Two Sigma’s astounding success has earned its founders a solid reputation in the finance sector and billions of dollars in personal wealth. According to the ProPublica tax records leak, Siegel and Overdeck each earned an average of $1.2bn in annual income from 2013 to 2018. They each have personal net worths of nearly $6bn, according to the Bloomberg Billionaires Index.
According to the recent securities filing, the founders’ rift is affecting employees’ ability to implement research, engineering, and general business initiatives. It could also affect the hedge fund’s ability to retain key employees. Yet, there are a few signs that it’s affecting Two Sigma’s profitability and investor sentiment.
Siegel and Overdeck currently serve as co-chairmen at Two Sigma, roles they’ve held since launching their firm in 2001. Before founding Two Sigma, Siegel worked at investment firm D.E. Shaw alongside future Amazon founder Jeff Bezos and later became chief technology officer at Tudor Investment Corporation, a multi-billion dollar hedge fund. Overdeck also worked at D.E. Shaw and later as a vice president at Amazon before launching Two Sigma.