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Case Study: Two Sigma Investments, LP and Affiliates

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    Company Profile

  • 65 Pages
  • November 2019
  • Alphacution Research Conservatory, LLC
  • ID: 4877000
Description Jump to:

In this comprehensive and unprecedented 65-page, 67-exhibit, and 16,100-word case study, the publisher details the structure, operating strategies and trading strategies of quantitative hedge fund powerhouse, Two Sigma Investments, LP and affiliates. Along with a chronology of notable developments and collection of data from its launch until mid-2019, this analysis also includes comparisons with other legendary quantitative trading firms, including (principally) David Shaw’s eponymous D. E. Shaw & Co., Inc.; Izzy Englander’s Millennium Management, LLC; and Jim Simons’ Renaissance Technologies, LLC.

The youngest of the four most successful active alpha extraction players – and second youngest overall - on II’s 2018 top 20 all-time net gainers list, Two Sigma was founded in 2001 by two former D.E. Shaw executives, mathematician John Overdeck and computer scientist David Siegel – along with a third co-founder, Mark Pickard (Tudor Investment’s former chief financial officer, who retired in 2006). Two Sigma is arguably the last of the second-generation quant powerhouses to be established – and just as the third-generation players, most of them proprietary trading firms (or, “prop shops”) with their highest-performance technologies and hyperactive “speed” strategies, are heating up.

What follows from here is ultimately a story centered around the part of Two Sigma – the original engine and driving force within what is now an increasingly diversified trading, investment, advisory, market-making, technology, analytics, private equity and venture capital operation - that we can see from the available data; the regulatory “data exhaust” from the original market-neutral, statistical arbitrage strategy launched in April 2002.


Table of Contents

1. Introduction
  • History Lesson
  • Sons Of D. E. Shaw
  • Data Sample
  • Contextual Overview
  • Competitive Intelligence
2. Storyboard
  • Organizational Overview
  • Strategy Comparison - Two Sigma Vs. D. E. Shaw
  • Adventures in Option Market Making
3. Conclusion
  • Next Steps
4. Supplemental Exhibit Library
  • Two Sigma – Aggregated 13F Reporting Entities
  • Two Sigma Investments, LP
  • Strategy Comparison – TSI and D. E. Shaw & Co, Lp
  • Two Sigma Securities, LLC
  • Timber Hill, LLC
  • Two Sigma International Ltd
5. About the Publisher
List of Exhibits:
Exhibit 1: Two Sigma 13F Reporting Manager Lineage Overview, Q4 2002 – Q2 2019
Exhibit 2: Top 100 Players In Us Listed Market Structure (V1.0) – “Structural Alpha Zone”
Exhibit 3: Asset Management Ecosystem Map With Liquidity Pools (V1.1)
Exhibit 4: Select Buy-Side Ranking Of 13F Gross Notional (Long) Market Values, Q1 1998 – Q2 2019
Exhibit 5: Two Sigma 13F Reporting Entity Lineage Details, Q4 2002 – Q2 2019
Exhibit 6: Two Sigma Organizational Overview - Total Estimated 13F Gnlmv By Fund Entity (Mid-2019, $000’S)
Exhibit 7: Two Sigma 13F Reporting Entities – Gnlmv By Entity, Q4 2002 – Q2 2019
Exhibit 8: Two Sigma 13F Reporting Entities – Gnlmv By Product Class, Q4 2002 – Q2 2019
Exhibit 9: Two Sigma 13F Reporting Entities – Average Product Class Concentration By Gnlmv ($)
Exhibit 10: Two Sigma 13F Reporting Entities – (Long) Position Count By Product Class, Q4 2002 – Q2 2019
Exhibit 11: Two Sigma 13F Reporting Entities – Total (Long) Position Count By Entity, Q4 2002 – Q2 2019
Exhibit 12: Two Sigma 13F Reporting Entities – Average Product Class Concentration By Position Count
Exhibit 13: Comparative Analysis TSI / DES – 13F Gnlmv, Q1 1999 – Q2 2019
Exhibit 14: Value And Correlation Analysis – Tsi Vs. Des
Exhibit 15: Comparative Analysis – QOQ Change In 13F Portfolio Value, Since Post-Gfc Trough
Exhibit 16: Comparative Analysis - Yoy Change In 13F Portfolio Value, Q2 2004 – Q2 2019 (Annualized)
Exhibit 17: Expanded Comparative Analysis – Average 13F Stock Position Value, Q1 1999 – Q2 2019
Exhibit 18: Expanded Comparative Analysis – Average 13F Stock Position Shares, Q1 1999 – Q2 2019
Exhibit 19: Comparative Analysis Tsi / Des – 13F Stock Positions, Q1 1999 – Q2 2019
Exhibit 20: Comparative Analysis – Largest 13F Position (% Tot. Portfolio Value), Q4 2002 – Q2 2019
Exhibit 21: Comparative Analysis – 10 Largest 13F Positions (% Tot. Portfolio Value), Q4 2002 – Q2 2019
Exhibit 22: Comparative Analysis – Stock Position Count Vs. Position Concentration, Q4 2002 – Q2 2019
Exhibit 23: Avg Position Concentration / Stock Positions (% Tot. 13F Position Count), Q4 2002 – Q2 2019
Exhibit 24: Two Sigma Investments, Lp – 13F Positions By Primary Product Classes, Q4 2002 – Q2 2019
Exhibit 25: Tsi/Tss – Primary Product Mix Shifts As % Total 13F Position Count, Q4 2002 – Q2 2019
Exhibit 26: Comparative Analysis Tsi / Des - 13F Gnlmv For Stocks Only, Q1 1999 – Q2 2019
Exhibit 27: Two Sigma Securities, LLC – Avg. Product Class Concentrations By Gnlmv, Q4 2014 – Q2 2019
Exhibit 28: Timber Hill Market Making Lineage – 13F Positions By Product Class, Q4 2008 – Q2 2019
Exhibit 29: Two Sigma Securities, LLC – 13F (Long) Position Count By Product Class, Q4 2014 – Q2 2019
Exhibit 30: Two Sigma Securities, LLC – 13F Gnlmv By Product Class, Q4 2014 – Q2 2019
Exhibit 31: Two Sigma 13F Reporting Entities – Gnlmv By Option Products, Q4 2002 – Q2 2019
Exhibit 32: Generic Nested Alpha Strategy Architecture
Exhibit 33: Two Sigma Investments. Lp – Total 13F Positions Ranked By Value, Q2 2003 – Q2 2019 (4Y Int.)
Exhibit 34: Two Sigma 13F Reporting Entities – Average Product Class Concentration By Shares
Exhibit 35: Two Sigma 13F Reporting Entities – Total Portfolio Shares, Q4 2002 – Q2 2019
Exhibit 36: Two Sigma 13F Reporting Entities – (Long) Option Value Bias By Product, Q4 2002 – Q2 2019
Exhibit 37: Two Sigma Investments, Lp – Avg Option Position Value (% Total Option Value), Q4 2002 – Q2 2019
Exhibit 38: Two Sigma Investments, Lp – 13F Gnlmv By Product Class, Q4 2002 – Q2 2019
Exhibit 39: Two Sigma Investments, Lp – Total 13F Shares By Product Class, Q4 2002 – Q2 2019
Exhibit 40: Two Sigma Investments, Lp - Average Position In Shares, Q4 2002 – Q2 2019
Exhibit 41: Two Sigma Investments, Lp - Average Position Value, Q4 2002 – Q2 2019
Exhibit 42: Two Sigma Investments, Lp – Average Etf Position In Shares, Q4 2002 – Q2 2019
Exhibit 43: Two Sigma Investments, Lp – 10 Largest 13F Positions (% Tot. Portfolio Value), Q4 2002 – Q2 2019
Exhibit 44: Two Sigma Investments, Lp – Largest 13F Position (% Tot. Portfolio Value), Q4 2002 – Q2 2019
Exhibit 45: Two Sigma Investments, Lp – Position Value Analytics (% Tot. Portfolio Value), Q4 2002 – Q2 2019
Exhibit 46: Two Sigma Investments, Lp – Ratio Of Avg ADR To Avg Stock Position Values, Q4 2002 – Q2 2019
Exhibit 47: Comparative Analysis – Avg 13F Position Value (% Tot. Portfolio Value), Q4 2002 – Q2 2019
Exhibit 48: Comparative Analysis – Stdev 13F Position Value (% Tot Portfolio Value), Q4 2002 – Q2 2019
Exhibit 49: Two Sigma Securities, LLC – Product Class Concentrations By Avg Shares, Q4 2014 – Q2 2019
Exhibit 50: Two Sigma Securities, LLC – Gross Securities Value By Product Class, 2012 - 2018
Exhibit 51: Two Sigma Securities, LLC – Portfolio Fair And Market Value Segmentation, 2011 - 2018
Exhibit 52: Two Sigma Securities, LLC – Net Value By Product Class (% Gross Value), 2011-2018
Exhibit 53: TSS Vs. TSI – Implied Average 13F Stock Price, Q4 2014 – Q2 2019
Exhibit 54: Two Sigma Securities, LLC – Total Shares, Share Equivalents By Product Class, Q4 2014 – Q2 2019
Exhibit 55: Two Sigma Securities, LLC – Avg Position Value (% Tot. Product Class Value), Q4 2014 – Q2 2019
Exhibit 56: Two Sigma Securities, LLC – 13F Pos. Concentration (% Tot. Portfolio Value), Q4 2014 – Q2 2019
Exhibit 57: Two Sigma Securities, LLC – 13F Pos. Concentration (% Tot. Portfolio Value), Q4 2014 – Q2 2019
Exhibit 58: Two Sigma Securities, LLC – Average Position In Shares By Product Class, Q4 2014 – Q2 2019
Exhibit 59: Two Sigma Securities, LLC – Avg Position Value By Product Class, Q4 2014 – Q2 2019
Exhibit 60: Two Sigma Securities, LLC – Avg Option Position Value (% Tot. Product Class Value), Q4 2014 – Q2 2019
Exhibit 61: Two Sigma Securities, LLC – Total Shares, Share Equivalents By Product Class, Q4 2014 – Q2 2019
Exhibit 62: Two Sigma Securities, LLC – Avg Position Value (% Tot. Product Class Value), Q4 2014 – Q2 2019
Exhibit 63: Timber Hill, LLC – Gross Vs. Net Securities Value, 2001-2018
Exhibit 64: Timber Hill, LLC – Gross Securities Value By Product Class, 2001 - 2018
Exhibit 65: Timber Hill, LLC – Net Securities Value By Product Class (% Gross Securities Value), 2001-2018
Exhibit 66: Timber Hill, LLC – Member’S Capital, 2001-2018
Exhibit 67: Two Sigma International Ltd. – Turnover, 2008-2018

Samples

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Companies Mentioned

  • D. E. Shaw & Co, Lp
  • Timber Hill, LLC
  • Two Sigma International Ltd
  • Two Sigma Securities, LLC

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