This Hedge Fund’s Two Feuding Founders Are Under Pressure to Make Peace

John Overdeck, co-founder of the hedge fund Two Sigma, has feuded for years with the $60 billion firm’s other co-founder, David Siegel. The pair are so much at odds that the firm disclosed in a securities filing that they are unable to make basic management decisions.

But now another rift might further complicate things: Overdeck’s wife has filed for divorce.

For decades, Overdeck and Siegel have had an operating agreement that provides that they own roughly equal stakes, hold the only two votes and invest equally in Two Sigma’s funds.

Early last year, Overdeck’s wife, Laura Overdeck, initiated divorce proceedings, citing “irreconcilable differences,” according to court documents. The dissolution of the 20-year marriage could force Overdeck to pay a multibillion-dollar settlement. The couple don’t have a prenuptial agreement, according to someone close to the matter, so they are currently negotiating a divorce settlement. Forbes currently estimates Overdeck is worth nearly $7 billion.

Overdeck’s equity in Two Sigma likely makes up the largest portion of his assets, and he is eager to maintain roughly equal ownership and voting rights with Siegel, according to someone close to Overdeck. At the same time, Siegel places a higher value on the firm than Overdeck does, the person said, a new potential reason for conflict.

The pending divorce has accelerated deliberations between the executives about the firm’s future, but no resolution has been reached, said people close to the matter. In recent years, Overdeck has indicated an interest in remaining actively involved at the fund, but Siegel wants to step back into more of an advisory role and spend time traveling and doing other things.

Yet Siegel doesn’t want to hand control to Overdeck, these people said. In the past, they have debated succession planning and selling part of the firm to an outside party but haven’t been able to reach any conclusions about a course of action, the people said.

“This is a personal matter for John, who is focused on his business and his children,” said Jonathan W. Wolfe, a lawyer for Overdeck. “He is not looking to divest from Two Sigma, and has no intention of entering into any divorce settlement that would affect the firm’s business or his ownership.”

Siegel couldn’t be reached for comment. A spokesperson for Two Sigma declined to comment. Theresa Lyons, a lawyer for Laura Overdeck, had no comment.

On March 31, Two Sigma warned clients that the relationship between Overdeck, 53, and Siegel, 61, had deteriorated to the point where they were having difficulty making key decisions. The rift could hurt Two Sigma’s operations and returns, the firm has said. The Wall Street Journal reported in June on the unusual regulatory disclosure and the feud.

Pressure is mounting on the co-founders to address their long-running disagreements and map a plan for the firm’s future. After the Journal’s article was published, the Securities and Exchange Commission began an examination of Two Sigma, according to people familiar with the firm. Such audits are routine among the largest hedge-fund firms and can focus on potential risks for a fund. SEC examiners have asked Two Sigma about the rift and its potential impact on clients, according to the people. An SEC spokesman declined to comment.

Investors in the firm’s funds, including the private-equity firm Blackstone —one of the firm’s earliest clients and still one of its largest investors—have also been asking about the conflict, people familiar with the matter said. Representatives for Two Sigma, in meetings and calls with clients, have said they don’t believe the founders’ relationship has been the driving factor behind any redemptions, which they characterized as small. They have emphasized that Overdeck and Siegel have worked together for decades and have disagreed before, but also said the firm is making some progress in succession planning.

“While we disagree about certain important topics, we also agree on many of the things that are most critical to our organization,” Siegel and Overdeck wrote in a note to investors hours after the Journal’s June article was published, adding that they remained committed to the firm and its clients.

Two Sigma took an initial step to try to address one of the contentious issues between the founders by naming temporary replacements for the recently retired chief operating officer, Jonathan Hitchon, who had long mediated between the founders. The founders’ inability to agree on a new COO had been one of the triggers for the disclosure, the Journal earlier reported.

The firm in July told clients it had named

Overdeck and Siegel have long had different priorities and styles, which for a while contributed to Two Sigma’s success, people who know them said. Siegel, a computer scientist, liked spending time on big-picture issues while encouraging staffers to pursue ambitious projects, including advances in artificial intelligence. Overdeck, a mathematician who by the age of 2 was counting by 17s, was viewed as more practical, focusing on improving Two Sigma’s performance.

For years, they insisted on anonymity for themselves and the firm. That changed starting in 2015 with articles in the Journal and Forbes. The founders decided the higher profile helped Two Sigma attract employees and assets.

They also became more competitive. Siegel scrutinized Two Sigma’s website, upset if his biography was shorter than Overdeck’s. After first appearing on the Forbes billionaires’ list a few years ago, the executives began keeping a close eye on annual rankings, according to people close to the matter, eager to leap over rivals and make sure they were ranked equally.

Several years ago, Overdeck was thrilled when USA Today identified him as New Jersey’s wealthiest resident, with a net worth of $6.1 billion, according to a person close to him.

Their worsening relationship became a distraction at the firm. Overdeck and Siegel sometimes blocked pay increases for staffers in each other’s departments. Priorities could change week to week, said a person close to the matter, sometimes according to the whims of each founder.

Employees strategized over whether both founders needed to be consulted on an issue, and, if so, how to approach them. Senior employees told the founders that navigating their relationship wasn’t a productive use of their time. A term some former employees have for surviving their time at Two Sigma: PTSD, or post-Two Sigma disorder.

Some well-respected senior executives have left the firm in recent years, at least in part because of the rift and the distractions it created, said people familiar with Two Sigma. They include Joseph Cua and Andrew Janian, for Citadel, and Nobel Gulati and Vikram Modi, who have started their own investment funds, said people familiar with the firm. In July, Two Sigma said its general counsel, Matt Siano, was retiring, surprising some because of its timing during an SEC examination.

Write to Gregory Zuckerman at [email protected] and Juliet Chung at [email protected]