Two Sigma’s private-equity arm is building out a data team — it’s a big move that could serve as a case study for PE firms that are behind the ball on AI

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  • Two Sigma’s private-equity arm has plans to build out its data capabilities, recruiting engineers, and data scientists to help provide insights to investment professionals and portfolio companies, Business Insider has learned. 
  • The PE arm, called Sightway Capital, plans to bring its roster of tech-oriented professionals closer in line with its investment professional staff, one of the sources said.Sightway Capital’s website lists 17 investment professionals, not counting operating, legal and compliance staff. Meanwhile, there are two data scientists displayed.
  • Another source said that Sightway Capital will focus on “measured” growth, with not all positions filled immediately.
  • The roles range from people who will mine data about companies and industries, to project managers who interface with portfolio companies and make those insights actionable, to more back-end software developers, who create dashboards and tools to equip companies with data visualizations created by Sightway Capital.
  • The effort could help illustrate the possibilities of data in private equity, though they are playing from a different field: a hedge fund with roots in computer science.
  • Private-equity executives are increasingly considering artificial intelligence and alternative data in their investment decisions, according to a recent report from Ernst & Young.
  • Click here to read more BI Prime stories.

The private-equity arm of hedge fund Two Sigma, known as Sightway Capital, is building out a team of data scientists and engineers to provide deeper insights to investment professionals and portfolio companies, two sources with direct knowledge of the matter have told Business Insider.

The goal is to bring its tech-oriented professionals closer in number to its investment professionals, one of these sources said. Sightway Capital’s website lists 17 investment professionals, not counting operating, legal and compliance staff. Meanwhile, there are two data scientists displayed.

Another source said that Sightway Capital will focus on “measured” growth, with not all positions filled immediately.

New roles will range from people who will mine data about companies and industries, to project managers who interface with portfolio companies, to software developers, who create dashboards and tools to equip companies with data visualizations created by Sightway Capital. 

The hiring spree signals a push by the hedge fund to differentiate itself among traditional private equity firms, pulling from its vast trove of company information and creating algorithms that may enhance investing decisions.

Traditional PE firms like KKR and Blackstone have added technology specialists in recent years, exploring how to bring information about the companies they own and the economy at large to bear on their investments. But sources tell Business Insider those efforts are early innings and the people who lead them have declined interview requests to talk about their plans. 

Two Sigma’s endeavors could help illustrate the possibilities of data in private equity, though they are playing from a different field: a hedge fund with roots in computer science.

Founded in 2001 by several quant enthusiasts from D.E. Shaw and Tudor Investment, Two Sigma has a reputation on Wall Street for its technological methods, including the use of artificial intelligence and machine learning.

In May, Two Sigma hired Patrick Leung, a former top Google engineer, who is a leader driving the private-equity data charge.

At Google, Leung worked as lead engineer of operations for a project called Google Duplex, which developed the feature that allows people to place restaurant reservations by phone without speaking to an actual employee.

He is working closely with Sightway Capital chief investment officer Wray Thorn.

AI piques PE industry curiosity 

That push comes at a time when private-equity execs are increasingly considering artificial intelligence and alternative data in their investment decisions, according to a recent report from Ernst & Young.

The advisory firm surveyed 100 finance executives at private equity firms in 2019 to gather insights into business trends affecting their work.

One question EY asked was whether the executives were using “next generation” data or artificial intelligence in their investment process.

Overall, 55 percent of respondents said they either use or expect to use this data or AI in the investment process. This was up from last year, when 26 percent of respondents said this, according to Kyle Burrell, a partner in EY’s asset management practice. 

“I just think it’s the nature of where the industry is,” said Burrell. “It’s just starting to understand the benefits of the data and trying to continually move the needle forward to see if there is an ability to increase returns.”

Other PE industry observers expect the AI rage to affect PE hiring patterns. 

Paulo Salomao, a consultant with Accenture who has studied AI in private equity, is one of them.

Salomao thinks PE firms will start to hire data scientists alongside analysts, as the people make-up within PE firms shifts to industry specialists, supported by tech practitioners.

“Most will happen at the entry level,” he said, of the hiring of data scientists. 

Hiring details

Two Sigma isn’t waiting for that trend to take off. 

Sightway Capital, which launched in 2017, currently has 15 portfolio companies and has already applied data analytics to its investments including portfolio company Dext Capital, a medical equipment leasing company launched in 2018, according to two people familiar with the matter. 

Now Sightway would like to expand that functionality and bring its technology team headcount closer in size to its investment professionals, which count about twenty five, these people said. 

The team they envision will be broken up into at least four distinct roles, one person said. 

Some of the professionals will focus on data science, creating algorithms, and mining information about companies.

Another part of the team will comprise of business analysts, who will take on more of a project management role and interface with the PE portfolio companies.

Then there will be software engineers, who build out dashboards and tools to give companies easy access to data visualizations created by Sightway Capital.

And lastly, Sightway Capital will hire IT professionals to serve as a de facto outsourced IT department for companies acquired that are still in their early stages. 

What makes an ideal candidate? 

One Two Sigma insider told us: someone who can translate a business trend into code, use Python without any hand-holding, while also having the finesse to connect with top brass of Sightway’s portfolio companies and help inform their business decisions with data analysis. 

Plus, it would be great if they knew a thing or two about private equity.

See also:Neuberger Berman is betting its future on a team of data scientists, and it says it’s helping it ‘see things others won’t for months’ in private markets

See also:It’s only going to get harder for private-equity giants to find cheap things to invest in, and that will be a huge drag on returns over the next decade

See also:Private equity firms like Warburg, Blackstone and Ares are embracing something they once shunned: the selling of their own investors’ stakes. Here’s what 5 insiders say is driving the explosive growth of this nearly $100 billion market.

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