(Bloomberg) -- Two Sigma Investments, the $60 billion quant giant, plans to spin out its private equity impact-investing unit amid internal discontent.
Two Sigma Impact’s inaugural fund raised $677 million, short of its $750 million target, according to people familiar with the matter. That occurred during a challenging environment as investors who allocate to funds struggled with liquidity. Still, some employees were disappointed about the extent of external fundraising support they received from the parent company, a person familiar with the thinking within the unit said.
The spinout is the latest in a series of recent disruptions for the firm’s clients. On Oct. 6, Two Sigma told investors that an employee “engaged in intentional misconduct” by tampering with its models. Earlier this year, the firm said a rift between its billionaire co-founders posed material risk.
A representative for New York-based Two Sigma declined to comment.
Two Sigma increased its initial $200 million investment in the Impact unit’s first fund, in part to make up for external fundraising that was less than expected, people said. Some employees saw challenges with a traditional hedge fund firm trying to raise money for a private equity vehicle. Some were frustrated with the amount of carry, or gains from investments, that the parent company takes, people said.
“We decided to transition Impact to an independent company to allow for the necessary agility to implement and refine the data-science work and value-creation initiatives we have been pursuing as part of our workforce impact strategy,” Two Sigma Impact told investors in a letter Tuesday.
The unit, with about 20 employees, also cut jobs as some of the staff weren’t invited to join the new entity, people said.
Geoff Lieberthal, a partner, resigned “for personal reasons” and transitioned his responsibilities to the Impact team, according to the letter.
Two Sigma said it “has high conviction” in the new firm and committed to invest as much as $75 million in its second fund, the letter said.
Read More: Two Sigma Accuses Employee of Misconduct That Led to Losses
Two Sigma Impact will also reschedule its annual investor meeting to Dec. 13, when it will provide more details on the new firm’s strategic direction.
Two Sigma Impact started in 2020 to focus on the “S” in ESG, which stands for Environmental, Social and Governance investing. It’s private equity bets focus on workforce issues and job quality and span sectors such as health care, education and training. It’s inaugural fund backed seven companies and made investments of $50 million to $100 million each.
--With assistance from Erin Fuchs.
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Author: Hema Parmar
