Hedge Fund Two Sigma Opening Real Estate Unit to Outside Capital
Two Sigma Investments, renowned for its prowess in data science-driven investment strategies, is embarking on a fresh venture with its real estate unit. This division, under the Two Sigma Real Estate Opportunity Fund, is now poised to open doors to external capital, allowing outside investors to partake in its offerings.
The real estate division, which officially became an investment adviser on September 25, has plans to launch various investment vehicles to manage external funds. In a strategic move, Two Sigma’s real estate initiative is aligning itself with other financial giants keen on exploring opportunities in commercial real estate. Notably, firms such as Fortress Investment Group, Goldman Sachs, and Principal Financial Group have already set the stage by creating real estate investment trusts dedicated to handling loans tied to sectors like shopping centers, office estates, apartment complexes, and industrial sites.
The Real Estate Opportunity Fund at Two Sigma is gearing up to expand its portfolio, focusing primarily on housing and industrial properties. However, the fund will also maintain a “strategic” approach towards other commercial real estate sectors, encompassing areas like hospitality and office infrastructure. The fund’s strategy allows it the flexibility to act both as a private equity entity acquiring tangible assets and as an investor in publicly traded securities.
Initially launched in 2021, Two Sigma’s real estate unit forms part of the firm’s broader private investment operations, which also encapsulate private equity and venture capital endeavors. Directing the investment endeavors is Rich Gomel, the unit’s Chief Investment Officer. Prior to this role, Gomel was at the helm of WeWork’s property investment platform.
What sets the unit apart is its integration with Two Sigma’s quantitative investment approach. This is achieved by collaborating with Strategic Data Science, a team dedicated to leveraging data insights in making informed property investment decisions. This data-centric methodology is anticipated to drive the fund’s strategic choices in the volatile real estate market.
Regarding financial structuring, the Real Estate Opportunity Fund is expected to impose a management fee ranging from 1% to 1.5% of aggregate commitments. Additionally, it plans to implement a carried interest charge equivalent to 20% of net realized profits exceeding an 8% compounded preferred return.
Further changes are in store for Two Sigma with the firm’s founders, John Overdeck and David Siegel, having announced a transition in leadership. By the culmination of September, they passed on the day-to-day management responsibilities to newly appointed co-chief executive officers, Carter Lyons and Scott Hoffman. Overdeck and Siegel are set to retain their roles as co-chairmen, continuing to contribute to the strategic vision of the firm.
This new chapter for Two Sigma’s real estate unit marks an exciting development in its ongoing journey, tapping into external capital and leveraging deep-seated expertise in data-driven strategies. As it steps into the external market, the company aims to carve a niche in the competitive realm of real estate investments.
