Does anyone have anything on Two Sigma Private Investments

They are intentional about keeping it remarkably discrete.

You write it as their "PE/credit" arm. That's a bit simplistic. More accurate would be 'all investments done outside the mandate of their traditional quant strategies' - and since they have LPs only for their official strategies, all of TSPI is principal money (as you point out).

@lonelyman" That is incorrect, just from looking at the site I can see that Wings is part of TSPI's platform approach (where they JV with some niche operator to supply capital that allow the operator to monetize their own experience and relationships).

It's a smart strategy; there's a host of opportunities that are under-addressed where someone with domain expertise and an arm's-reach proximity to anyone who matters in the space can deliver high returns with low capital amounts.

Usually it's a couple of guys coming out of some kind of conglomerate, whether industrial or financial, who can articulate how if their corporate parent raised their 'budget', they'd be able to jump on attractive opportunities (either capture market share or expand overall market).

Wings looks like an interesting deal (I wasn't aware of it until you posted it). I've seen similar ones in the T&L space. Let's take maritime shipping as an example. Two guys come out of CIT's maritime finance group and approach Ares. They have a friend at Unifeeder, a large but by no measure market-leading (29th overall) sea shipping player.

They demonstrate an unmet need in the bareboat charter category specifically for offshore drilling, and with complementary financial and operational experience, they believe they'd be able to deliver something like 38% MoM over 18 months on a $165m cost basis, then 22% over 36 months on a $400m cost basis.

TSPI is not the only place to do this. You'd be surprised how many of even the massive ($10b+) shops will structure deals like this.

One common way is to build a waterfall. The operator gets no money until a capital is returned, still no money until a hurdle rate is met, then increasing portions of the profit as the multiple on money grows. e.g. (fund/operator) 1.0x = 100/0 1.1x = 100/0 1.3x = 80/20 1.6x = 60/40 2.0x = 40/60 3.0x = 20/80

In my made-up scenario above, the operator is clearing ~$16m on that first 18-month period (earns 20% of returns generated until 1.3x is crossed, then earns 40% until 1.6x is crossed; $165 * 1.38 = $227.7; $62.7 in profit, of which $45.9 is below the second hurdle and $16.8 is above, so [$45.9 * 0.2] + [$16.8 * 0.4] = $15.9).

You've got three guys whose idea it was, plus three younger guys who they wanted to use as junior resources (modeling, contract review, process management), so maybe a 90/10 split where the partners are getting 30% interest in the carry pool each and the remaining 10% is split among the juniors. That means the three guys with the idea each clip $4.77m for a year and a half of work.

It isn't glamorous, it isn't buy-a-waterfront-house-in-the-Hamptons-tomorrow money, but it's real. If you were tired of a slow-moving desk job at CIT or Unifeeder, this is the exit you dream of. You know that once you're in that seat, you can scale, because once you hang your shingle out for business, new deals are going to come your way.

There are even further benefits. It's both lightweight (you have access to a scalable asset base thanks to the fund you're JV-ed with) and and portable (presents the optionality of raising your own committed fund in the future; after 3-5 years of performance, there's no reason you can't attract caliber LPs to a fully-owned vehicle of your own).

The downside is simple: if the idea doesn't work, you don't get paid. Unlike a fund, you aren't getting management fee income (usually), so you don't have the lifestyle cushion of $Xm to live off of until hypothetical carry checks start materializing. This is why it's usually mid-career or late-career guys doing structures like this (along with the fact that it takes some time to develop the expertise or flow that would make it viable to begin with).

From the fund's perspective, it's massively Accretive. As long as the return is there, it's an easy way to deploy your gargantuan amount of capital. 10 JVs like this is over $1.5b deployed just in transpo/logistics ... and that's not counting whatever you've sourced proprietarily. With good performance, you can then subsequently unleash your IRBD folks to demonstrate the capacity for further AUM growth.

I used to wonder how funds got to $50b+ in AUM, then when I started seeing deal structures like this, it all clicked. You can easily grow into a management fee monster.

I only know TSPI second-hand, but my sense (intentionally off-the-radar, principal capital only, lean team) is that they're return-sensitive, not dollars-at-work sensitive.