Bonus – Tweaking the algorithm

Just a little bonus today from the Wall Street Journal:

A researcher at Two Sigma Investments adjusted the hedge fund’s investing models without authorization, the firm has told clients, leading to losses in some funds, big gains in others and fresh regulatory scrutiny.

The researcher, Jian Wu, a senior vice president at New York-based Two Sigma, was trying to boost his compensation, Two Sigma has told clients, without identifying Wu. He made changes over the past year that resulted in a total of $620 million in unexpected gains and losses, according to people close to the matter and investor letters. Two Sigma has placed Wu on administrative leave.

The Securities and Exchange Commission is examining the matter. …

Wu’s changes led to gains of $450 million in total for some Two Sigma funds—including those in which the firm’s own executives and employees invest, as well as those available to clients. But they also led to a total of $170 million in losses for other funds compared with how they otherwise would have fared—losses largely borne by clients. Two Sigma has made them whole.

People familiar with the situation said Wu was trying to improve the firm’s performance, which would have benefited his career and potential pay.

One Reply to “Bonus – Tweaking the algorithm”

  1. I presume that Two Sigma’s “investing models” were based on Excel workbooks. If so that goes to show that Excel is simultaneously the best program in the world and the worst program in the world!

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