• The $19 billion manager Rokos Capital is an outlier in the increasingly institutional hedge fund industry.
• Its billionaire namesake, who was a cofounder of Brevan Howard, runs the majority of the portfolio.
• While multistrategy funds are attractive for their diversification, Rokos is appealing for its big bets.

Investors in the billionaire Chris Rokos' eponymous hedge fund had reason to celebrate the reelection of Donald Trump.

The firm made nearly $1 billion in profits the day following Trump's victory, Bloomberg first reported, pushing its year-to-date gains to more than 28% through mid-November.

The macro manager, now running $19 billion, made money across asset classes following the election, when US stocks ripped upward, the dollar strengthened, and Treasury yields jumped — as did many funds that put on the "Trump trade" before the election.

But very few firms the size of Rokos Capital Management have so much of their portfolio concentrated with a single risk-taker. While Rokos has hired quasi-portfolio managers who can put on trades — known in the firm's parlance as "investment officers" — the firm's founder still runs the majority of the portfolio, several people close to the firm said.

As the hedge fund industry's titans have shifted away from macro philosophers to business-building executives, Rokos is a throwback to a time when names like Stanley Druckenmiller and George Soros were on the top of every allocator's wish list.

And the anachronistic London-based manager has ridden its strong performance and, ironically, the movement away from its style of investing to its record size. The biggest investors in the world — sovereign wealth funds, pensions, endowments, and more — now need diversification in their portfolios from the sprawling multistrategy managers that often move as a group and put on similar trades.

Against this backdrop, Rokos stands out for its lack of correlation with the industry's biggest names.

"Pensions need the volatility," one Rokos investor at a US pension told Business Insider. Limited partners in Rokos include Canada's main pension fund and Blackstone, people familiar with the firm said.

And after raising another $2 billion in assets earlier this year, Rokos is not slowing down, industry insiders said. The firm declined to comment.

'Deprived' of his abilities

The 54-year-old Oxford-by-way-of-Eton grad cut his teeth at UBS, Goldman Sachs, and, finally, Credit Suisse, where he spent a little over three years trading alongside Alan Howard.

In 2002, Howard, Rokos, and three other Credit Suisse traders left the now-defunct Swiss bank to launch Brevan Howard (the "R" in Brevan is for Rokos). A decade later, the star trader left the manager hoping to start his own investment firm.

A five-year noncompete agreement stopped any immediate plans, though, despite Rokos' lawyers arguing that the sit-out period would leave the public "deprived" of his "skills and hard work."

Eventually, Rokos and Howard settled their dispute, and Howard even backed Rokos' new manager, reports at the time said. Rokos Capital Management launched in the fall of 2015, quickly growing to $3.5 billion before closing to new money.

In a preview of things to come, Rokos profited from Trump's first election in 2016 — the manager returned close to 20% in its first full year of trading.

Nearing its 10th anniversary, Rokos today resembles the original Brevan more so than the current iteration of Howard's manager. Brevan, which has seen its assets rise and fall thanks to uneven performance over the past decade, is structurally closer to multistrategy managers like Citadel and Millennium as it diversifies assets across risk-takers around the world.

When Brevan launched, Howard was the biggest risk-taker; Now, he no longer trades for the manager, BI reported earlier this year.

Headquartered on the posh London strip known for its bespoke tailoring, Roko's firm has a "Savile Row style" of customization for its founder. The team and research functions are molded to his way of investing, a former employee told BI, even down to the font and color coding of reports.

The goal of the firm's dozens of investment officers, analysts, and researchers — regulatory filings show that 60 people perform "investment advisory functions" across the firm's London and New York offices — is to be his "eyes and ears," this person said, adding: "When he had a question, there was a number we could find to answer it."

Rokos' superpower is his ability to monitor positions like "a human quant." One person who worked with him said he knows the positions put on by his investment officers better than they do, despite managing a much larger book.

This person also said he could stay steady in areas he's confident in, even if markets move against him in the short term.

"He's willing to wait through cycles if he believes the risk is worth it," another person who worked for him said.

A demanding place

It wasn't the plan for Rokos to be the only one putting on trades when the firm launched, people familiar with his thinking at the time said, though that was the reality for a number of years.

Several people at the firm at its start said the issue was that he couldn't find people who thought and traded exactly like him. These people said it's a physically demanding place that requires working long hours alongside a founder who constantly questions everything.

"He has a relentless pursuit of the truth," one person said.

As a result, the firm has cycled through several executives and management structures over the years. Mark Edwards, a former Goldman Sachs managing director who joined Rokos at its launch, stepped down from his CEO perch earlier this year, triggering a slew of changes.

Matthew Sebag-Montefiore, a onetime partner at the consultant Oliver Wyman, is now the CEO, while Pria Bakhshi was promoted to the global head of strategic solutions. Quita Ramirez joined last December as the global head of business development, investor relations, and communications from Schonfeld. Dmitry Green and Lauren Fairbairn, both partners, left this year.

Still, Rokos has worked to delegate some of the risk-taking to others. One investor estimated he takes 60% to 70% of the firm's risk, and that may continue to go down.

Several people close to the firm said he's hoping to add more investment officers, specifically in equities. The exact number of investment officers the firm employs is unclear, though a LinkedIn review shows 17 with the title, many of whom are also partners.

Volatility wanted

While it's counterintuitive, the manager's biggest selling point might be the roller-coaster nature of its returns. A 44% surge in 2020 was followed by a 26% drop in 2021. In 2022, when the S&P 500 dropped more than 18%, the manager had its best year on record, with a 51% gain.

With worries the industry might be hitting peak multistrategy, managers with a higher risk-return profile should be more common, the billionaire AQR founder Cliff Asness wrote earlier this year.

Alternatives "are generally more effective in higher-vol versions," he wrote but "mostly (not entirely) missing from the market today and should take on a bigger role."

As Brevan has transformed into a more diversified platform, and the likes of Louis Bacon, Michael Platt, and David Tepper have returned outside capital, allocators and industry insiders said it's hard to find a peer of Rokos'.

Jeffrey Talpins' Element Capital mostly runs internal money after returning funds at the start of the year, and Said Haidar overhauled his manager after a 43% loss in 2023. Paul Tudor Jones has expanded into quant strategies and seeded external funds, though he's still known for big directional bets.

Rokos, a press-shy billionaire whose media mentions are mostly about construction projects at his multimillion-dollar properties, including a 100-bedroom manor that dates to the days of Henry VIII, is in a league of his own, one investor said.

The limit to the firm's growth, this person said, is going to be internal restraints, not external interest.

"He could raise another $2 billion with a snap of his fingers," this person said.

• Jaffray Woodriff's Quantitative Investment Management wants to grow after a stretch of tough years.
• The 21-year-old manager changed its research process, freeing Woodriff to focus on what he does best.
• In conversations with Woodriff and those running the $1.1 billion firm, they're as optimistic as ever.

Jaffray Woodriff, the face of $1.1 billion Quantitative Investment Management, is stepping back into the spotlight.

The firm, which fell from $5 billion in assets a decade ago thanks to a stretch of underperformance, has been quiet—likely too quiet. When contacted for this story, a few allocators who had met with the firm before but hadn't been in touch for a number of years thought it had been transformed into a family office.

Headquartered in Charlottesville, the western Virginia town home to the University of Virginia, QIM became an easy option to skip for investors looking to meet with multiple funds in a day in places like New York or Greenwich.

Yet its three cofounders — 55-year-old Woodriff, president Mike Geismar, and researcher Greyson Williams — are as optimistic as ever about the future.

"This is as excited as I've ever seen him about research," said Geismar, who was roommates with Woodriff 30 years ago, nearly a decade before QIM started.

"He's not going to stop."

New hires and the creation of a research team have freed Woodriff, still the firm's investment engine, to spend more time on idea generation and less on implementation. There's a renewed focus on marketing, and the firm is courting investors from institutions around the world with hopes of growing up to $4 billion.

And it's the time is right for firms like QIM.

As large multistrategy managers like Millennium and its peers become a bigger part of institutions' portfolios, there's a growing need for volatility that a place like QIM, which systematically trades equities, indices, futures, and more and has no correlation to stock or bond markets, can provide. Performance ticking up has also helped.

Strong returns from both programs, including a 19.2% gain in its oldest strategy, in 2022 opened eyes again. This year, through October, the firm's more aggressive offering is up more than 34%, while its older program has returned 1.7%.

"I like math geeks. That's what Jaffray is, and his team," said Salem Abraham, an investor in the firm for 17 years and a longtime business partner of late billionaire T. Boone Pickens.

"QIM is the type of firm Harry Markowitz would have been happy to find," said Abraham, referring to the late academic who came up with the Modern Portfolio Theory.

Volatile ride for a volatile manager

The 21-year-old quant manager was a darling in the industry at its start. Woodriff, who lives in Charlottesville and owns a farm nearby, grew up on a farm outside the "magical city," he said. He went to college at the University of Virginia, where he came up with the foundation of his trading system during a Pepsi-fueled, 40-hour coding session.

In 2019, he made history by making the largest donation in the school's history, $120 million, to create a school of data science.

Woodriff, deemed "the monk in managed futures" by a 2009 Institutional Investor profile, got the reputation of someone "obsessed with markets and how they work," said Kyle Dunn, a former hedge-fund marketer who now consults for funds and worked with QIM to develop their "story."

Its Global Program strategy soared in its first two full years of trading in 2004 and 2005, with gains of 21.8% and 18.4%, before its strong crisis showing put the firm on the radar of bigger allocators. With gains of 29.6% in 2007 and 12.5% in 2008, the firm added assets quickly.

But the 2010s were not a decade for a strategy uncorrelated to stocks. The firm's Global Program lost money in 2013, 2014, 2018, and 2019. QIM's Tactical Aggressive strategy, launched in 2008 and willing to take bigger swings than the flagship, followed a 60% gain in 2017 with a 42% drop in 2018.

Assets left for more stable managers with strategies that weren't a black box.

"There were lots of conversations with clients about what went wrong," said Geismar, QIM's president. There were also conversations internally about how it had gotten to this point.

Woodriff said he had "thought experiments" about going the family-office route or closing one of the programs.

"The consistent theme has been: The research looks way too good to give up now," he said about the tough stretch of performance in the mid-2010s. The firm was helped by its equity investment into Florida-based Voloridge, a $9 billion quant manager run by David Vogel, who first met Woodriff when they were competing in a Netflix data science competition.

QIM charges no management fee, so when the firm's strategies lost money, there were no revenues coming in. But thanks to Voloridge's rapid growth and strong performance — the firm went from less than $1 billion in 2010 to more than $6 billion in 2020 — bonuses were able to still be paid out to keep employees happy.

Still, Woodriff admitted he had "gotten close to the threshold of shutting things down."

Back to being an idea guy

Instead, the manager reworked itself.

The firm's risk management was overhauled, and Woodriff began sharing some of the research responsibilities, in part thanks to the 2022 hiring of Chris Lankford, one of five research team members with Woodriff and Williams.

Lankford, who had worked as a consultant for QIM for a year before joining the firm full-time, has a doctorate in systems engineering (from UVA, naturally) and previously cofounded a company that tracks the eye movements of disabled individuals to help them communicate. The company was sold to DynaVox in 2010.

"For the first time in my career, I had people who could listen to me describe a complicated scenario and process and go do it three times faster than me," Woodriff said.

"There's such an increased speed in trying out ideas. It's a shame we didn't have this dynamic five, 10 years ago."

It's given some relief to allocators who were concerned with all of the risk-taking being tied to one person. Woodriff said there was an "extremely consistent drumbeat from investors and potential investors asking how dare you be the only one working on alpha."

"It's always been a difficult conversation," he said, in part because "people have known my best skill is idea generation and creativity," and he wouldn't have time to devote all of his energy toward that.

Woodruff said the research team, which also includes longtime data scientist Seth Oldham and 17-year QIM vet Greg Tylka, gives him a better answer to the "bus question" — as in, who would take over if he was hit by a bus, a common question allocators ask during due diligence to understand succession plans.

Lankford, in particular, has given a new lease on life to the firm, Williams said.

"He's been a great link" between Woodriff and other parts of the business, he said.

"I don't think Jaffray appreciated the constraints on his time before," Williams said.

Not going anywhere

While Woodriff has passions outside work — on top of his work building out the UVA's newest school, he received a US Squash Special Recognition Award in 2014 for his "leadership and substantial contributions to squash," of which he's an avid player — one conversation with the intense researcher reveals where his true passion lies.

"I knew in college I'd never want to retire," he said, and nothing about the past three decades has changed that drive.

Woodriff would be "bored" if he retired, his cofounder Williams said.

"It's a passion, career, and hobby for him," he said.

Those close to him say his renewed interest in the firm's strategies and more time to think have not so much reignited his passion as added fuel to the fire.

"They're a unique find and a unique fund," said Abraham, the investor in the firm and a longtime quantitative trader himself.

"It's difficult to find the things to make the stew special," he said. Stocks and bonds are the meat and potatoes of a portfolio. Funds like QIM are the pepper.

"They're spicy," he said.

Since college, Woodriff has been on a mission to "be totally different from everyone else."

In that regard, it should be no surprise the firm didn't shutter during its tough years or that Woodriff still believes in what he and his team can do.

"I still feel like I'm very good at it," he said.

• Quant hedge fund Seven Eight Capital is winding down, according to people familiar with the matter.
• The fund managed around $500 million at its peak and traded for Schonfeld for many years.
• The funding is closing after large investors pulled capital, the people said.

Quant hedge fund Seven Eight Capital, which for many years invested money for Schonfeld Strategic Advisors, is winding down, according to people familiar with the matter.

Seven Eight Capital is closing as a hedge fund and will cut most of its staff after two large investors redeemed capital, the people said, asking to remain anonymous because the information isn't public.

The firm could continue to operate in some capacity, the people said, potentially as a separately managed account for an existing hedge fund.

Cofounder Adrian Sisser declined to comment when reached by phone.

Seven Eight, founded by Sisser and Stephen Cash, managed around $500 million in assets at its peak, sources familiar with the firm said. It had 22 employees this year, according to a regulatory filing,

For many years it managed capital for Schonfeld Strategic Advisors, trading on the multimanager hedge fund's platform for more than a decade.

The two firms cut ties last year amid a reorg and cutbacks at Schonfeld.

• Stephen Wu transitioned from tech to finance, starting a hedge fund with $10 million.
• Wu's experience at Amazon and Microsoft taught him efficiency and managing technical debt.
• He said trading is more fun and more money than tech.

This as-told-to essay is based on a conversation with Stephen Wu, a 29-year-old hedge fund manager from New York. It's been edited for length and clarity.

If you ask Alexa to play Taylor Swift, my team built the system that recommends similar songs to listen to afterward.

I studied computer science and philosophy at Carnegie Mellon during college and always thought I would work in engineering. I applied to work at Amazon during my senior fall semester in college and started at Amazon Alexa right after graduating. I was hired as a software engineer in Seattle, creating and building the music recommendation system and overseeing a team of three engineers.

It was a good mix of my passion for music and engineering, but eventually, I left Amazon for Microsoft and then left tech to start a hedge fund with about 80 investors.

I raised almost $10 million from friends, family, high-net-worth individuals, influencers, and others in the hedge fund space that first year. I still love engineering, but hedge funds make money, so they're much more fun.

Amazon taught me how to prioritize and be efficient

Working at Amazon, I learned that its ethos differs from other tech companies.

Google and Meta are more engineering-focused. Microsoft aims to build the best tool for the customer, even if it takes extra time. Amazon, on the other hand, seeks to make things fast.

Instead of building it right the first time, Amazon allowed me to create the minimum viable product usable to meet the deadline. While working there, I learned a lot about prioritization and efficiency.

Still, after about three years, I wanted to explore new roles. A Microsoft recruiter reached out to me via LinkedIn. I took the call and was intrigued by their offer of an engineering-heavy business role. I would work directly with engineers to build and plan the machine translation system used by Microsoft Azure.

I liked the opportunity to combine my strengths in engineering and business for this role, so I accepted it in 2020.

I learned a lot in tech and used it to launch my hedge fund career

I loved working at Microsoft and worked there for about three years. In my free time, I dabbled in hedge funds, which are any fund using a non-traditional investment style.

One crucial learning takeaway that helped me in my future endeavors was technical debt — if you build something too quickly and take shortcuts, you may spend twice the time just fixing the bugs.

I can tell if a product wasn't built right or if it might incur additional unforeseen costs that other hedge fund managers may not know about. Also, because I built statistical models and AI algorithms recommending songs to users at Amazon Alexa Music, I understand the statistical behavior of price movements. This allows me to take a more data-driven, probabilistic approach to trading, while most fund managers focus on financials.

After 6 years, I left Big Tech for the finance industry

I specifically invest in options trading after volatile events. I always loved it, but I never thought I could do it full-time.

Along the way, I discovered a very lucrative strategy for trading in a specific niche in the options market. I did this for fun with my portfolio through 2020 and 2022. It was during the pandemic in 2022 that I realized that NASDAQ was down 33%. That year, I proved my strategy in a bear market and felt confident enough to pursue this as a serious career.

For years, my friends and family asked to invest with me, and I was finally comfortable trading with their money. I left Microsoft in April 2023 to work on the hedge fund full-time. I worked extremely hard during my first year of fundraising and trading simultaneously and was very stressed.

Fundraising was difficult initially, but I allowed investors to try with a small amount first and see the returns for themselves. The minimum amount to invest is $100,000.

I love trading and plan to do it forever

Since our trades are weekly, I allowed them to withdraw any week if the performance was poor. This was highly unusual and risky for hedge funds because they could withdraw any week, and my fund would die. However, I was confident I could perform. After several months of good performance, many of my investors doubled or tripled their investments.

And now, more folks continue to invest through word-of-mouth.

I aim to grow this to a $100 to $200 million fund in the next few years. It's just me, so it's a lot of work, although I have part-time analysts helping. Once reaching $100 million, I can hire more analysts and expand the strategy.

I love trading. It's fascinating because it's like solving a puzzle every single day. As an engineer, I was making a solid six figures a year. It depends on how much profit I generate this year, but if my fund is $15 million and I achieve the 30% yearly profit target, I'll make $1.2 million.

I enjoyed solving complex engineering challenges, but trading offers a more dynamic, fast-paced environment and I plan to do this for the rest of my life.

If you left Big Tech for another industry and would like to tell your story, please email Manseen Logan at [email protected].

• In a new podcast, billionaire Point72 founder Steve Cohen talks about the intangible values good investors have.
• Cohen, the owner of the MLB's New York Mets, spoke about how the level of discipline is similar to professional athletes.
• Investing at Point72 requires analysts to be in a "constant learning," he said.

The employees of billionaire Steve Cohen's two companies compete in different arenas.

The New York Mets, the Major League Baseball team Cohen has owned since 2020, play their games in front of tens of thousands of fans in Queens and opposing teams' stadiums. Meanwhile, Cohen's hundreds of portfolio managers and analysts at his $35 billion hedge fund Point72 are trying to beat the market and peers at firms like Citadel, Millennium, and more every day in offices around the world.

Cohen just handed out the largest contract in baseball, signing phenom Juan Soto to a 15-year contract that could pay him up to $800 million — but he expects the mindsets of the baseball players and traders on his payroll to be similar.

No matter the situation, there are key intangibles that an individual must have, Cohen said on a Point72 podcast with the firm's co-CIO Harry Schwefel. Good investors need to be opportunistic, vulnerable, passionate, and curious, but most importantly, like great athletes, they need to be disciplined.

"The talent in this industry is exceptional," said Cohen, wearing a gray New York Mets pullover, speaking about investment management.

To outperform, it's about "doing it day in, day out, no matter how it feels, how you feel." He spoke about how he hated weekends early on in his career because he wanted to trade and compete, comparing it to baseball players who, despite having a season that spans at least six months, can't wait for Spring Training.

Because of the discipline required by high-level sports, former college athletes have become a major recruiting ground for finance firms. A 2023 Harvard Business School study found Ivy League athletes "outperform their non-athlete counterparts in the labor market."

"Athletes attain higher terminal wages and earn cumulatively more than non-athletes over the course of their careers," the study found. Athletes also attain more senior positions in the organizations they join.

Point72 is a good example: Schwefel played for Harvard's hockey team.

In the conversation between the two, Cohen also revealed the questions he asks of any potential hire. He wants to understand "what makes them tick" and also how flexible they are.

"Do they want to be right or do they want to make money?" Cohen said. People who are right are "rolled over by the markets" all the time, he said, so a good investor has to be "constantly redefining who you are."

It's why at Point72, Cohen said, "constant learning" is mandatory for any employee. Once you find the area you're passionate about, he said, you have to be fully in it, improving every day, just like an MLB player or a pro golfer.

"This is pattern recognition and knowing what you're good at," he said about investing.

"Throw your best pitch."

• The industry's biggest names were up despite choppy markets following Donald Trump's victory.
• Balyasny led the way among multistrategy firms, posting a 3.9% monthly gain.
• Firms like Citadel and Schonfeld continue to build on a strong year of returns.

The biggest names in hedge funds ended an up-and-down month in markets in the black.

Multistrategy managers overcame the volatility surrounding Donald Trump's electoral victory — when markets initially skyrocketed but then sold off briefly before rebounding — with firms like Balyasny, Schonfeld, and Citadel posting strong returns for the month.

Balyasny led the way among its peers with a 3.9% gain in November to bring the Chicago-based manager's 2024 returns to 11.6%, a person close to the manager confirmed.

Schonfeld meanwhile continued its strong streak for the year, returning 1.8% in its flagship fund. The New York-based manager is up 17.2% for the year, a person close to the firm said. Ken Griffin's Citadel was also up 1.8% last month in its Wellington fund, while Izzy Englander's Millennium made 2.2%.

The billionaires' firms are up 13.2% and 12.5%, respectively, on the year. Bloomberg previously reported on the firms' November returns.

While multistrategy managers' returns were dwarfed by those of macro managers like Rokos and Discovery Capital that took big swings on Trump's victory, their biggest selling point — steadiness in turbulent markets — was proven true in November.

See below for more performance data. Additional firms will be added as their numbers are learned. The managers declined to comment or did not immediately respond to requests for comment.

• Quant funds are expanding beyond computer-run strategies.
• Firms like Qube and Squarepoint are backing legions of human stockpickers.
• "We want to diversify our alpha sources," said Squarepoint's Nicolas Janson.

As mega hedge funds like Millennium, Citadel, and Point72 battle for the best stock-picking talent, another segment of the multi-trillion-dollar industry has joined the fray.

Quant funds are increasingly turning to their longtime competition — human stock-pickers — to diversify their returns. Firms like Qube Research, Squarepoint Capital, and Engineers Gate are backing human traders through portfolios run by third parties, also known as separately managed accounts, or hiring them to trade internally.

Qube, the $20 billion London manager that started 2024 with a bang, has backed 44 stock-picking managers via its SMA platforms since the start of last year. This platform gives the firm insight into the managers' trading and risk management but allows the stockpickers to remain external and raise capital from other allocators.

The firm hopes to grow that number to 100 in the next few years, a person close to the manager told Business Insider. The firm declined to comment.

Squarepoint Capital declined to say how many portfolio managers it has backed on its SMA platform but noted that it only allocates to non-systematic strategies. The manager does not allocate externally to a strategy that would compete with one they have internally, according to Nicolas Janson, the firm's head of external investment strategies who joined at the start of 2022 to build out the platform.

"We want to diversify our alpha sources," Janson said in an interview with BI.

As these firms' assets swell thanks to strong performance, executives are constantly evaluating possible growth areas.

Engineers Gate, for example, is continuing to grow its footprint. The quant firm, which expanded to Asia earlier this year and runs more than $10 billion, according to regulatory filings, hired Mike Daylamani to build out a fundamental team, several people close to the firm told BI.

Daylamani will start in his new role in 2025 and comes from Schonfeld, where he ran a team that blended fundamental and quantitative strategies. He previously ran a similar team at Balyasny for a year after working as a fundamental portfolio manager for Steve Cohen at Point72 for close to a decade.

Two Sigma, one of the largest managers in the hedge fund industry, started hiring human stockpickers for the first time over the last few years, nabbing people such as Zach Rieger and Daniel Schuster, former partners at Maverick spin-off fund ROAM Global Management, in 2022, and Ernesto Cruz, who is the firm's director of research for fundamental equities after working as a portfolio manager for Singapore's sovereign wealth fund, in 2021.

While the manager cut 10% of its workforce in November, no PMs were included in the culling.

Firms that expand beyond their core strategies can occasionally struggle to integrate a different style, but big-name quant managers like Two Sigma and D.E. Shaw have been able to consistently generate returns as they've added investors focused on areas like private markets, real estate, and more.

In fact, D.E. Shaw might be the poster child for other quants considering expansion. The firm's website lists eight different discretionary strategies compared to three systematic offerings and two hybrid strategies that blend the two.

• Reflexivity is a startup cofounded by two former hedge fund traders.
• It sells software to hedge funds and institutional investors to speed up the research process.
• The 4-year-old upstart just raised its $30 million Series B.

A startup looking to transform how investors and traders use data just received funding from some of the biggest names in the hedge fund world.

Reflexivity, formerly known as Toggle AI, raised its $30 million Series B in late October. Interactive Brokers and Greycroft led the round, which included participation from billionaire investor Stanley Druckenmiller and Greg Coffey, the Australian founder of hedge fund Kirkoswald. Existing investors include Millennium Management's founder, Izzy Englander, and General Catalyst.

Reflexivity was founded by two former hedge fund traders who were all too familiar with the woes of wrangling disparate data sets to find an investing edge, or at the very least, to not miss out on an opportunity others are seizing. The startup aims to mitigate that by combining third-party data from a dozen providers like S&P Global and newsfeeds, in addition to proprietary internal information, for a full-view analysis and also flagging the potential impact world and market events may have on a portfolio.

"When you are an investor inside a major hedge fund, one big fear that is always present is that you are going to miss something," cofounder and CEO Jan Szilagyi told BI. "It's always exciting to have a trade that you are the only one that's in it, but the thing that is far worse is to miss on the trade that everybody else but you is in."

The four-year-old startup recently changed its name to more closely align with how the platform helps with the investment process, Szilagyi told Business Insider.

"Reflexivity is the act of examining one's own assumptions, beliefs, and judgment systems, and thinking carefully and critically about how these influence the research process," he said, referring to a term popularized by legendary investor George Soros.

Szilagyi was a portfolio manager for nearly 20 years at firms including Druckenmiller's Duquesne Capital Management and Fortress Investment Group. The fintech's president and other cofounder, Giuseppe Sette, also worked in asset management including a stint at macro giant Brevan Howard. They remember the investment analysis process as one that "seemed hopelessly broken" because critical data sources were fragmented and spread out across different providers and systems, Szilagyi said.

The firm estimates the potential market for its services is $16.4 billion. Reflexivity so far has about 20 institutional clients, tallying some 15,000 individual users. Clients include trading platforms like Interactive Brokers, banks, including Japan's largest in MUFG, and several hedge funds, including Millennium Management, Soros Fund, and ExodusPoint. The startup was highlighted as one of Business Insider's up-and-coming fintechs in 2023.

It has a valuation between $115 million and $150 million, Szilagyi said.

How Reflexivity works

The upstart's platform lets stock-picking investors analyze data that covers about 40,000 securities from a dozen different providers, including Refinitiv and the London Stock Exchange Group, the Federal Reserve, and S&P Global. It is also built to alert customers, mostly discretionary investors who work at hedge funds and asset managers, to market events and their potential ripple effects on a given portfolio.

If there's a big move in treasury yields, Reflexivity will automatically examine the ripple effects and see how that could impact banking stocks. In this hypothetical example, Reflexivity would see that its user, say a hedge fund trader, has Wells Fargo stock in her portfolio, and flag to her that Wells Fargo stock historically reacts very well to a rise in yields.

Behind the scenes, a proprietary knowledge graph and generative AI-powered user interface helps users connect the dots and better understand investing relationships, Szilagyi said.

Szilyagyi says he also has an answer to a question many Wall Street technologists are facing with hallucinations, or generative AI's tendency to make up answers that are presented as fact.

Reflexivity's answer is a so-called closed system, wherein the AI models can only pull answers from data that's been pre-vetted by the startup. The reason other models, like OpenAI's ChatGPT, hallucinate is because it operates on an open system that takes in data from anywhere on the internet, Szilagyi said. If it can't find anything, it'll be inclined to make up an answer because these tools are built to deliver some kind of answer, he said.

On top of that, Reflexivity also programmed its models to not force an answer to every question. About 5% of the time, Reflexivity will say it doesn't have the ability to answer a given question if it's unable to generate an answer from the data it's been given, Szilagyi said.

"For finance professionals, the ability to get the candid and honest answer is absolutely critical because it only takes one, two hallucinations to be extremely costly when it comes to trading," Szilagyi said.

Here's Reflexivity's pitch deck it used to raise its Series B.

(Because the startup only recently changed its name, these slides include its former name, Toggle AI.)

• A 2017 presentation for macro investor Scott Bessent's hedge fund explains his research process and "edge."
• Bessent, the nominee for Treasury secretary by President-elect Donald Trump, said his "guiding research principle is change."
• His firm, Key Square Capital, struggled to generate returns despite its strong pedigree.

As Scott Bessent's political profile rose, so did the chatter around his macro hedge fund's relatively poor returns.

Bessent — the former righthand man for billionaire George Soros and now the nominee for Treasury secretary by President-elect Donald Trump — saw billions of dollars leave his firm, Key Square Capital, after its 2016 launch, Reuters reported. The manager lost money in 2017, 2018, 2020, and 2021 before notching double-digit gains in the last three years. This year's gains were helped by a bet on Trump's reelection.

In macro investing though, performance can be choppy, and Bessent's investing process is a throwback to old-school macro traders like his former boss, according to a 2017 Key Square presentation reviewed by Business Insider.

It's not clear if there have been any changes to the investment process in the seven years since the presentation was created. Bessent worked for Soros for 15 years and, before that, was the first-ever analyst for legendary short-seller Jim Chanos' Kynikos Associates.

The presentation details how Bessent might go about crafting his views on fiscal policy in his new role, should he be confirmed by the Senate following Trump's inauguration.

"Key Square views its research process as a think tank that is bolted on to disciplined trading and risk management," one slide reads. The manager describes the team as "aggressive intellectuals" who "organize frequent teach-ins" and have a constant stream of outside experts coming to the office to speak to the team.

"Our guiding research principle is change," the presentation continues, stating that there isn't a "singular framework" for evaluating potential investments, but instead an evolving view that changes when new information is available.

The firm prides itself on finding that new information. The presentation claims that the Key Square team reads "voraciously," travels frequently, and taps the firm's "unparalleled global network of contacts consisting of policymakers, political advisors, industry leaders, corporate management teams, consultants, academics, and market participants."

Sell-side analysts, though, do not factor heavily into Key Square's process.

"We finish rather than start with the Street," the presentation states, tapping the research teams at big banks only to "understand consensus or seek alternative views."

The presentation also said that it considered the firm's patience and investment horizon a part of its "competitive edge."

"We are investors, not traders," the presentation reads. The typical investment is held for one to three years, and the firm is comfortable waiting to put money to work until the timing is right.

"We invest in the future, study the past, and focus on current pricing."

• Two Sigma laid off 200 employees Thursday, 10% of the $60 billion firm's workforce.
• The hedge fund is run by co-CEOs Carter Lyons and Scott Hoffman, who took over for Two Sigma's billionaire cofounders in September.
• The firm is planning to continue to invest in its core strategies, a person close to the manager said.

Thursday brought the latest twist in a year full of them for $60 billion Two Sigma.

The New York-based quant giant has cut 200 jobs — roughly 10% of its overall workforce. The layoffs come less than three months after co-CEOs Carter Lyons and Scott Hoffman took the helm for billionaire cofounders John Overdeck and David Siegel.

No portfolio managers were eliminated, a person close to the manager told Business Insider. Bloomberg earlier reported the cuts.

Two Sigma, which produced decent returns in its two largest quant funds through the first half of the year, is still planning to grow areas it found to be the most impactful following the firm's strategic review, the person close to the manager said. Those areas include quant and discretionary strategies, machine learning, and the manager's tech platform.

The leadership change offered the firm an opportunity to do a broader review of its different units, the person said. The manager has expanded in recent years, including a real-estate strategy in 2021 and risk management and portfolio analytics platform Venn in 2019. The firm also started hiring investors to focus on discretionary strategies for the first time last year.

The goal is to be more disciplined as the firm grows going forward, the person close to Two Sigma said. They noted that the employee retention rate is 95%, so any meaningful changes at the firm would have to be done through job cuts.

The firm is just starting on the journey that very few hedge funds ever begin: life without its founders.

Two Sigma's investors though were ready for a change. The firm's cofounders had been feuding for years, dividing the manager internally.

Lyons, the former chief business officer, was lauded for his work in expanding Two Sigma's product offerings in the August announcement of his promotion. Meanwhile, Hoffman, Lazard's former general counsel, was picked in part for his experience "navigating complex governance changes," the announcement noted.

The announcement also pointed to Hoffman's key role in shepherding Lazard's IPO to completion in 2005. It said he was a key player in the process, advising the boutique investment bank's leadership and board.

One industry insider noted that his hiring might pave the way for a potential listing from Two Sigma one day; the manager's diversified offerings and tech platform make it more well-rounded than the average hedge fund, and a liquidity event could at least partially detangle the bickering cofounders' fortunes.

In this light, the latest cuts could be seen as a clean-up of balance sheet bloat — but the person close to the firm said that a listing has not been discussed in any form.