Two Sigma Machine Studying ‘Godfather’ to Begin His Personal Fund

One of the prolific Wall Road buyers you’ve got by no means heard of is getting ready to launch a hedge fund.

He is by no means been written about in a mainstream information article, however in sure quant finance circles, Hao Zhang is a revered determine. For 17 years, up till 2024, the quant researcher produced a number of the most beneficial buying and selling indicators at $60 billion hedge-fund big Two Sigma.

A pioneer in making use of machine studying to markets at Two Sigma, Zhang is now planning to hang around his personal shingle. He is within the early phases of speaking to potential buyers and hedge fund service suppliers, in line with 5 individuals who’ve been briefed on the plans.

Zhang intends to name his agency Hippocampus Capital Administration, the sources stated, and is focusing on a launch date in early 2026, one of many individuals stated. It is not clear how a lot capital he is trying to elevate. Zhang’s contract with Two Sigma prohibited him from elevating cash from buyers earlier than July 1, the individuals stated.

Business sources count on the launch to generate vital curiosity from buyers, given Zhang’s popularity and observe file. His alpha analysis has been answerable for billions in buying and selling income for Two Sigma over the course of his profession, the individuals stated.

Zhang didn’t reply to requests for remark. Two Sigma declined to remark.

The strategies ‘godfather’

Two Sigma, which has 1,700 workers at the moment, was a relatively small agency when it employed Zhang in 2007, working in what was then the secretive hedge fund area of interest of quant buying and selling.

The fund was on the vanguard of machine studying, an early synthetic intelligence technique that helps computer systems make selections and predictions, and acknowledge patterns. Zhang, together with his specializations in each stats and pc science, early on developed profitable buying and selling fashions targeted on machine-learning non-linear strategies — uncovering advanced, non-obvious patterns in market knowledge — individuals aware of Zhang stated. The group that developed round such methods took on totally different names through the years, however employees shorthand was typically merely “strategies.”

Whereas Two Sigma would pursue different machine-learning initiatives, strategies turned the crown jewel and a carefully guarded secret. Some confer with Zhang because the “godfather” of the unit, in line with former workers.

Individuals aware of Zhang, together with two former Two Sigma workers, stated the billions of {dollars} attributed to his buying and selling fashions make him one of many high researchers within the firm’s practically 25-year historical past.

The small footprint Zhang does have on-line comes from college press tales related to his donations — which have ramped up lately — to the California Institute of Expertise and the College of California at Berkeley.

Zhang transferred from Fudan College in Shanghai to Caltech in 1997 to review engineering and utilized science, later incomes a grasp’s in statistics and a Ph.D in pc science at UC Berkeley.

“That coaching and training has been a cornerstone in my life,” Zhang stated within the 2024 announcement of his endowment of a Berkeley professorship.

Whereas finding out at Berkeley, Zhang lived with one other math and stats whiz named Peng Zhao, in line with a number of individuals who know them. Zhang joined Two Sigma after finishing his doctorate; Zhao helped construct Citadel Securities, the place he was named CEO in 2017.

Two Sigma’s tumultuous two years

Two Sigma has traditionally maintained a low profile, as is widespread with quant funding companies.

However its final two years have been uncharacteristically tumultuous, highlighted by the long-simmering chilly struggle between founders John Overdeck and David Siegel that burst into public view in 2023. The agency grappled with one other scandal that yr when a rogue researcher from the strategies unit was accused of unilaterally tampering with buying and selling fashions, leading to a Securities and Trade Fee investigation and $90 million in civil penalties earlier this yr (Two Sigma denied wrongdoing).

A sequence of organizational reorgs have additionally transpired, in addition to senior management departures and layoffs.

Zhang’s strategies unit hasn’t been resistant to the management shakeups. Ken Baron stepped down in 2024, and Kan Huang left for Cubist Systematic Methods final fall. Zhang went on sabbatical final yr and departed in late 2024, the individuals stated.

He racked up tens of tens of millions in compensation through the years, in line with individuals aware of the matter, which can come in useful in launching Hippocampus. Quant fund startups are notoriously costly to get off the bottom — costing tens of millions for the mandatory knowledge and know-how — and might take years to yield returns.