Two Sigma is entering a new business.
The technology- and data-driven hedge fund giant has launched Two Sigma Real Estate, according to a press release that’s expected to be published Wednesday.
The unit will invest in private real estate assets and will be headed up by Tom Hill, who will serve as CEO of Two Sigma Real Estate; Rich Gomel, the unit’s chief investment officer; and Drew Conway, head of data science.
Hill is the chairman of Two Sigma’s private investment business, which also includes Two Sigma Impact, Two Sigma Ventures, and Sightway Capital.
“The question for me: Is there a way to take what Two Sigma has built in the technology area and apply the processes and systemization that worked on the liquid side to private investments?” Hill said in a phone interview. “The answer is yes.”
Two Sigma, of course, is best known for its quantitative-driven hedge funds. It currently manages $58 billion, including $3 billion in its private businesses, according to a person familiar with the firm.
It currently employs 1,600 people, many of whom work as engineers, data scientists, and researchers.
Like other quant firms, Two Sigma has enjoyed mixed success lately. Last year its equity strategies were profitable while its macro strategies were in the red, according to the source.
Hill was an early investor in Two Sigma when he worked at Blackstone Group, the asset management giant where he spent 25 years, including as president and CEO of Blackstone Alternative Asset Management and vice chairman of Blackstone Group, where he served as a member of the board of directors. He joined Two Sigma in a consulting role in early 2019.
[II Deep Dive: Two Sigma Picks Former Blackstone Exec Tom Hill to Lead Private Investing]
In Wednesday’s announcement, Two Sigma said the new real estate business will draw on the firm’s “machine-supported approach” to investing in general while humans will ultimately make the investment decision.
Speaking to Institutional Investor, Hill explained that technology can forecast future rents and demand and figure out the supply side of the equation looking out three, five, seven years. “We worked with data scientists for a year” in advance of announcing the new initiative, he said.
Gomel — a 20-year real estate industry veteran who joined Two Sigma from WeWork — will play the human role.
“Human judgment and relationships are not going away,” Gomel said in the phone interview. “Tech will guide us but not make the decisions.”
Two Sigma said in the press release that it plans to focus on real estate assets in North America across multiple segments. When pressed on specific asset classes, Hill and Gomel were non-committal, stressing that every asset class is on the table.
Part of the vagueness no doubt is related to Covid-19 and whether certain trends from the past year are permanent or temporary.
Like other real estate investors, Two Sigma faces questions like: Are much fewer people going to work in offices than in the past? Is the suburban/rural migration permanent? Is the move from major cities to secondary and tertiary cities permanent? Are people going to eschew large urban apartment buildings in favor of single-family or multi-family homes, perhaps outside of the city? Will travelers prefer full service hotels or limited service hotels? What is the future of business travel, conventions and trade shows?
Hill, however, is not deterred by the past year’s events.
“Some things didn’t change,” he said. “E-commerce and purchases online did not change.”
Rather, Hill asserted that Covid is an acceleration of trends that have been in motion over the past 10 years.
Of course, uncertainty also frequently creates tremendous potential opportunities in any financial market.
Certain cities and sub markets are seeing their growth accelerate. Sectors like hospitality will no doubt offer value as the economy recovers. Same with office and retail.
“We have incredible data on consumer behavior such as credit cards,” Hill said. “We can see where people are leaving and where they are going.”
