The $620M Impact of Unauthorized Model Changes at Two Sigma
Welcome to FundFire’s News Brief, a roundup of a few top stories from the past week.
Two Sigma, which was already under pressure due to its co-founder’s squabbles, recently told clients it had a new headache: an analyst gone rogue.
The researcher is accused of making unauthorized changes to Two Sigma’s quantitative models that caused $170 million in losses to some funds, and $450 million in gains to others, according to a company letter to investors. The quant in question is Jian Wu, sources told FundFire. Wu, who was based in New York, joined the firm in 2018 and had been senior VP of quantitative research for less than a year, according to a LinkedIn profile.
Early this year, a post from a hedge fund quant using the name “all is treasure” made its way around Chinese social media service Xiaohongshu, showing a screenshot with over $23 million in earnings. The author said the post aimed to show it is possible to make money outside of coding or programming. Sources confirmed to FundFire that the post was made by Wu.
The $60 billion hedge fund shop didn’t respond to requests for comment, but said in a letter to investors viewed by FundFire that the funds experiencing a positive impact would retain the gains, while the firm would “remediate” funds that experienced a negative impact on performance.
Previous news reports indicated the researcher, unnamed at the time, had been placed on leave following the incident.
Chart of the Week When it comes to fessing up about the reason a broker was fired, some firms are more descriptive than others. UBS, J.P. Morgan and Wells Fargo topped the list of wordiest firms on termination disclosures, while BNY Mellon, Stifel and Commonwealth said much less, an analysis of U5 filings revealed. The analysis included more than 100,000 records obtained through public records requests. Observers say less can be more when disclosing reasons for termination, as these filings are among the prime triggers of new Financial Industry Regulatory Authority investigations, and often contested by the brokers they describe.
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