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Two Sigma opens real estate unit to outside investors

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Quantitative hedge fund firm Two Sigma Investments is preparing to raise external capital for a new real estate investment fund opening up what until now has been an internal operation to outside investors, according to a report by Bloomberg.

The report cites a regulatory filing as showing that the firm’s real estate unit, which registered as an investment adviser on 25 September, currently manages the Two Sigma Real Estate Opportunity Fund, and plans to launch additional funds to manage external capital. The new vehicles will leverage the firm’s expertise in data science to identify and invest in real estate opportunities.

Other prominent investment managers, such as Fortress Investment Group, Goldman Sachs, and Principal Financial Group, are also raising capital to invest in the commercial real estate sector. These firms are particularly focused on refinancing billions of dollars in maturing debt tied to properties like shopping centres, office buildings, apartments, and industrial sites.

Two Sigma, which manages around $60 billion, declined to comment on the development, although the filing does provide some insights into the firm’s plans. The Real Estate Opportunity Fund will focus on acquiring properties in the housing and industrial sectors, with a “strategic” approach to other commercial properties such as hotels and office buildings. The fund will operate as a private equity vehicle that acquires real assets but will also have the flexibility to invest in publicly traded securities.

Launched in 2021, Two Sigma’s real estate unit is part of its broader private investing business, which also includes private equity and venture capital. The division is led by Rich Gomel, a former managing partner at WeWork’s property investment platform. Gomel and his team are incorporating Two Sigma’s quantitative approach to investing, with a dedicated Strategic Data Science team aiding in decision-making for property deals.

The filing also outlines the fund’s fee structure, which includes a management fee ranging from 1% to 1.5% of aggregate commitments, along with a carried interest fee of 20% of net realised profits above an 8% preferred return.

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