The firm has focused on hiring top AI, machine learning, and quantitative PhD talent to build and improve models. Two Sigma recently made a minority investment in Crux Informatics, a startup that specializes in cleaning up, transforming, and reformatting giant data sets, which must be done before Two Sigma can apply data science to extract signals and value out of it. They also invest in natural language processing capabilities to analyze news and video content. Two Sigma heavily invests in machine learning systems to analyze more than 10,000 data sources using 75,000 CPUs and 35 petabytes of data. Over 70% of Two Sigma’s 1,400 employees come from outside the finance industry and the majority are focused on research and development to perfect the platform through coding, modeling, and engineering. To stay ahead of the competition and address the need for superior returns and adaptation to evolving market conditions, Two Sigma has taken a number steps to remain at the forefront of innovation over the short and medium-term. In an industry ripe for disruption, Two Sigma has a significant first-mover and competitive advantage with its sophisticated trading models that use world-class computing power to identify trading patterns that exploit inefficiencies and identify alpha opportunities in the public markets. In an industry facing heightened competition, dulled growth, volatility, and significant fee pressure, $50 billion Two Sigma differentiates itself among hedge funds by utilizing machine learning and the scientific method to quickly forecast market moves to enhance returns, control risk, and arbitrage information about stocks. This explosion of alternative data has created an arms race among hedge funds hiring data scientists to dive into pools of data and use machine learning algorithms to extract insights or predictive signals in a fraction of the time and with greater accuracy than the human brain.
The IDC estimates that the amount of digital data the world produces will reach 44 zettabytes (trillions of gigabytes) by 2020, an amount so big that if it was all put in iPad Air tablets, the stack would reach from earth to the moon more than six times over. Having been a client of Two Sigma’s, I wonder how accurate Two Sigma’s predictive algorithms can be in an uncertain market backdrop and as unprecedented events occur that machines have never encountered. Since founding Two Sigma Investments in 2001, statistician and computer scientist co-founders John Overdeck and David Seigel have sought to reinvent the investment management industry through the use of machine learning, distributed computing, and other technologies to develop cutting-edge systematic hedge fund strategies that deliver superior risk-adjusted returns for its clients.
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