Two Sigma – a New York-based hedge fund that oversees more than $60 billion, started selling its software program Venn. The software analyses client positions and guides them towards better risk management strategies.
The Hedge fund joins other giants like BlackRock in establishing a business to monetize its-in-house software.
In the past, we have not seen top hedge funds give outside investors a peek behind the curtains. But Two Sigma well known for its secretive yet strong returns is starting to open up- but expects to cash in.
Prudential Financial, Brown University, and the State of Wisconsin Investment Board are among its early clients.
The move is a sign that its investment strategies once considered cutting edge are increasingly getting into the mainstream.
Other asset managers have also expanded their software business in recent years. For instance, Blackrock’s Aladdin system is one of the most dominant tools institutions use in risk management.
The two Sigma’s system can quickly put in data about clients’ investment positions. It can also run analysis based on factors like momentum a credit.
Investors mostly use factor methods to guide their decisions. Hence the software can give them a clue into areas where they may have too little or too much concentration of risk. It helps them adjust their risk in this case.
Investors can see how their positions would have performed in prior periods, including recession, and financial shocks.
Two Sigma will update the system to allow investors to test investment returns and correlations based on market shocks, such as the escalation of the trade war.
“There are a small number of investors who can access our funds today, but there are thousands of other investors out there who have no relationship with us but could benefit from Two Sigma’s technology,” said Jake Dwyer, general manager of Venn in an interview with Barrons.
“How can we offer something that allows them to engage with us in a scalable way to address needs across their portfolio without having to deal with the capacity constraints of managing a product? Software scales infinitely in that respect,” he added.
Dwyer sees it as a significant market opportunity for its overall business revenue.