19 February 2025

Two Sigma Investments Launches Real Estate Fund to Attract External Capital

Two Sigma Investments is launching a new real estate fund that utilizes its data science expertise, transitioning from an internal operation to one that invites outside capital investment.

Two Sigma Investments Launches Real Estate Fund to Attract External Capital

In a significant move within the financial sector, Two Sigma Investments is set to launch a new real estate fund that will leverage the firm's advanced data science capabilities. This initiative marks a shift from an internal operation to one that welcomes outside capital, reflecting the growing interest in commercial real estate investments amid changing market dynamics.

On September 25, Two Sigma's real estate unit officially registered as an investment adviser, paving the way for the Two Sigma Real Estate Opportunity Fund. This fund is designed to attract external investments and will be complemented by additional vehicles aimed at managing external capital, as indicated in a recent regulatory filing.

The commercial real estate market is witnessing a surge in interest from various money managers, including Fortress Investment Group, Goldman Sachs Group Inc., and Principal Financial Group Inc. These firms are establishing real estate investment trusts (REITs) focused on financing commercial properties, which encompass shopping centers, office buildings, apartment complexes, and industrial properties. This trend comes as developers face the challenge of refinancing billions in maturing debt.

While Two Sigma manages approximately $60 billion in assets, a spokesperson for the firm declined to provide further comments on the new fund. The Real Estate Opportunity Fund is expected to focus primarily on investments in the housing and industrial sectors, while also adopting a strategic approach to other commercial real estate categories, such as hospitality and office spaces. The fund will operate as a private equity vehicle, acquiring real assets, but it will also have the flexibility to invest in publicly traded securities.

Founded in 2021, Two Sigma's real estate unit is part of the firm's broader private investing strategy, which includes private equity and venture capital. Rich Gomel, the unit's chief investment officer, previously served as managing partner of WeWork’s property investment platform, bringing valuable expertise to the team.

Incorporating Two Sigma's quantitative investment approach, the real estate unit collaborates with a dedicated team known as Strategic Data Science to enhance its property investment decisions.

The Real Estate Opportunity Fund will implement an initial management fee ranging from 1% to 1.5% of total commitments, alongside a carried interest structure that allocates 20% of net realized profits exceeding an 8% compound preferred return, as detailed in the filing.

In a notable leadership transition, Two Sigma's founders, John Overdeck and David Siegel, announced in August that they would step back from daily management responsibilities, handing over the reins to new co-CEOs Carter Lyons and Scott Hoffman at the end of September. Despite their ongoing disagreements over the firm's direction, Overdeck and Siegel will continue to serve as co-chairmen.