Does anyone have anything on Two Sigma Private Investments

Formaldehyde41's picture
Rank: Baboon | banana points 131

Anyone here knows anything about Two Sigma Private Investments? It's the quant fund's pe/credit arm. Their website is very simple with no information on portfolio companies or investments. The fund apparently is not open to outside investors and invests with Two Sigma's people's own money.

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Comments (14)

Aug 1, 2017

did you check them out on the company database, https://www.wallstreetoasis.com/company/two-sigma-...?

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Aug 2, 2017

The reviews and salaries are all on quant hf side.

Aug 1, 2017

I used to intern at a company that dealt with them. Since it is a quant trading fund, most traders there are either A) top notch undergrads, like top of their class from brown, stanford, etc in CS. B) Have their PhD in comp sci/physics/statistics.

Other than that which you already knew, they are an extremely interesting place to be. I have been there and the office is amazing- gym, kitchen and even a slide, the whole damn thing! People are there who truly love their specific field. Some of the smartest people I have ever spoken to work there. They truly want to work with the most advanced technologies with people who have an interest in the science behind trading~ by which turning algo trading into a game. Very well compensated from the trader/developer side.

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Aug 2, 2017

Thank. I am focusing on Two Sigma's private investment side and I don't think their quant hf is interested in a banker.

Aug 2, 2017

Yup, makes sense. Are you going through recruiting right now, or just speculating?

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Aug 2, 2017

Just speculating and exploring options.

Aug 3, 2017

They are Wings Capital Partners now

Aug 3, 2017

Do I have anything on them? Well I hacked into their CEO's e-mails and he is banging your wife. The question is - do you bring it up and use as blackmail while risking your dignity, or do you give your wife a deadly STD and wait for him to die and take his job? I'll leave that up to you

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Aug 3, 2017

I have a wife? Well, that is new.

Best Response
Aug 4, 2017

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.

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Aug 5, 2017

Thanks for the clarification.

Aug 12, 2017

Stickler comment, but just for confirming math, shouldn't the 18-month operator take total ~12mm instead of ~16mm? Difference is taking profit share off the 1.3 less 1.1 (not 1.0) MoM

Aug 12, 2017

We could both be correct. It ultimately depends on how the documents are drawn up.

There could be a 'catch-up' clause that says no money is disbursed to the operator until X (and maybe Y) hurdles are met, but after those hurdles the operator receives 100% of income until he is 'caught up' to whatever the current split (predicated by total cash returned to date) is, then all monies are distributed according to the waterfall. That was the assumption in my sketch.

There could be a hard line clause that says all monies up until the first hurdle go to the fund/financial partner, and then and only then does the operator get to participate in whatever waterfall is drawn up. This is the assumption in your sketch.

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Aug 9, 2017

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