Hedge-fund founders are masters of the universe, making their fortunes with elaborate computer systems, never-before-seen strategies, and prescient predictions.
But succession still flummoxes these billionaires, who often build their firms by touting their own personal genius.
Battles over who will take over long-running funds, such as the one that took place over several years at Bridgewater Associates, or stumbles after a star founder steps back are common. Investors in managers with graying founders push their funds to come up with succession plans, with varying degrees of success.
Founders can be protective of thinking of a future for a firm they built from the ground up, but big institutional investors worry about their portfolio’s durability as much as its current returns.
In the case of $60 billion Two Sigma, the LPs are cautiously optimistic after a tumultuous stretch for the firm, which was fueled by a long-running dispute between its two billionaire heads.
The quant giant announced Wednesday morning that cofounders John Overdeck and David Siegel are stepping down from their roles atop the firm to become the manager’s co-chairmen. At the end of September, Two Sigma’s chief business officer Carter Lyons and former Lazard general counsel Scott Hoffman will take over as co-CEO, the manager said in a press release.
“Our vision has always been to build a sustainable organization driven by a systematic investment process, a commitment to investing in our people and platform, and an evolution mindset,” Siegel said in the release. “With their vast experience, complementary expertise, and appreciation for Two Sigma’s unique culture, Carter and Scott will carry this vision forward, guiding the firm to even greater heights.”
Quiet retirement?
The release does not mention how Siegel’s and Overdeck’s visions for the firm decoupled in recent years to the point that the firm had to make a disclosure in a filing saying its management committee “has been unable to reach agreement on a number of topics” — including succession.
It was setting up to be an ugly fight between the two billionaires and their internal backers until Wednesday’s announcement. Two Sigma’s investors — who still enjoyed solid returns last year and through the first half of 2024 despite the internal drama — avoided having to choose sides with news of the announcement even if they helped shepherd this decision along.
Early returns have investors smiling though.
“It’s what we wanted to see,” one Two Sigma investor told Business Insider.
While a leadership change impacts every fund, quant platforms have proven themselves to be more capable of adapting. D.E. Shaw and Renaissance Technologies, two of Two Sigma’s biggest competitors, have turned over their C-suite and continued to hum along.
“David and John have built a remarkable firm that has continuously broken new ground in investment management. I look forward to learning from them and partnering with Carter, as well as the entire Two Sigma team, to build on the firm’s progress and momentum,” Hoffman said in the release.
One long-time hedge-fund investor, Rudy Koitchev, who runs SEI’s $4 billion portfolio of hedge fund and liquid alts, said Two Sigma has all the ingredients to become another example of a successful transition to the next generation, but it’s too early to know for sure.
“Time will tell,” he said.
What’s to come
It’s not publicly known what the new CEOs’ primary focuses will be, but there are hints in the letter the cofounders sent to investors Wednesday.
Lyons, Overdeck and Siegel wrote, “has been instrumental in our expansion and diversification” over his 13 years at the firm. Two Sigma has added strategies focused on private investments and real estate in recent years as the firm’s platform has grown, and Lyons has been a part of growing Two Sigma’s “global footprint.”
Hoffman’s expertise, meanwhile, is “navigating complex governance changes,” the letter states. His experience at Lazard — which replaced its CEO last year — “makes him uniquely well-suited for leadership as Two Sigma enters the next phase of its evolution.”
Among his responsibilities at the investment bank: Advising Lazard’s leadership and board on its IPO.
Read the full article here
