The feud between billionaires that may have started over a chef’s hat
By Hema Parmar
It’s difficult to say precisely when the feud began between billionaires David Siegel and John Overdeck — the slights and bruised egos stretch back at least a decade — so start here, with the chef’s hat incident.
In 2015, Forbes magazine described Overdeck as the “master chef” at hedge-fund giant Two Sigma Investments, and Siegel as the “manager.” To rub it in, Overdeck wore a torque blanche - a traditional chef’s hat - to a meeting. Siegel stewed for days.
The relationship between David Siegel (left) and John Overdeck (right) was toxic for years. They are pictured here in 2017 with billionaire and former New York mayor Michael Bloomberg.Credit: Getty
Or maybe it was the spat some years later about, of all things, their official biographies: Siegel was annoyed that Overdeck’s was longer and, behind his back, demanded cuts.
On it went, one tiff after another, until the two could barely stand to be in the same room. Their daily lunches together ceased at least five years ago. The firm held separate town halls for their respective business units. It’s now been years since the two spoke to the firm together.
By 2024, they’d reached a standoff: Neither would move aside as long as the other was still there.
Until Wednesday, that is, when the two founders stepped down together in an attempt to resolve the dispute that has plagued the quant powerhouse for so long. The dysfunction — described by more than a half-dozen people with direct knowledge of the firm, including former employees who said staffers served as the two men’s reluctant go-betweens — grew so toxic that Two Sigma disclosed the mutual animosity in a March 2023 regulatory filing as a “material risk” that might jeopardise its prospects.
Wall Street is full of tales of animus and betrayal. But rarely has bad blood built up and spilled out the way it has at Two Sigma, one of the world’s biggest hedge funds with $US60 billion ($88.7 billion) of assets under management and a roughly 2000-person global staff. The very public turn of events is all the more remarkable because the firm Overdeck and Siegel founded is widely viewed as one of the most secretive players in the hush-hush world of hedge funds.
Stepping into the founders’ roles are two executives — Carter Lyons and Scott Hoffman — who stand in sharp relief to their quant-brained predecessors.
Lyons, a CFA with a finance degree, is a 13-year veteran of Two Sigma who most recently served as its chief business officer. Hoffman left as general counsel of Lazard last year after almost three decades at the firm. Overdeck, by contrast, was a high-school mathlete who went on to study mathematics and statistics at Stanford University. Siegel was coding and building logic boards by age 12 and earned a PhD in computer science from the Massachusetts Institute of Technology.
Carter Lyons (pictured) and Scott Hoffman have replaced the founders’ as co-chief executives.Credit: Bloomberg
The implication: Two Sigma, quant shop of quant shops, will no longer be by run by quants.
The firm declined to comment, beyond the news release announcing the changes on Wednesday. The Wall Street Journal was first to report Two Sigma’s regulatory disclosure and details of the founders’ disagreements.
The fissure, so far, hasn’t appeared to bother clients or dent performance. Two Sigma’s quant algorithms essentially run on their own, unperturbed by office drama. Even amid the rift between the engineering and investing arm, Two Sigma’s main funds has mostly made money over the past five years — so some investors are happy to stay put.
Fight for credit
Power struggles among shared leaders are littered throughout Wall Street history. Lehman Brothers co-CEOs Lewis Glucksman and Peter G. Peterson battled in the 1980s, leading to the sale of the firm. Henry Paulson and Jon Corzine jostled over control as Goldman Sachs prepared to go public in the late 1990s. Even last year’s sale of Sculptor Capital Management stemmed in part from a years-long fight between the hedge fund’s founder Dan Och and his onetime protégé Jimmy Levin.
Two Sigma employees have long whispered that the bad blood between Siegel and Overdeck probably came down to one thing: ego. The men seemed to constantly be at odds over which one deserved more credit for their collective success, and whose business defined the firm. Overdeck — the mathematician — handled modelling and research and viewed Two Sigma as an investing firm. Meanwhile, his computer scientist counterpart oversaw engineering and saw it as a tech company.
Employees had to shuttle between the partners who preferred not to speak to each other, even about important business matters. On the rare cases they were together, they’d talk over each other.
Tensions built. The CEOs’ power struggle created a politicised environment where employees were consumed by the possibility of upsetting the feuding founders. Siegel, in particular, is known for yelling at employees.
Trouble became more public over the past year or so. News that Overdeck was getting divorced raised questions about the future of his stake in the firm. A rogue employee was accused of tampering with trading algorithms. Part of the private equity business went off on its own.
Siegel also has a slightly smaller equity stake than his rival because, years ago, he gave some up in order to lure a senior hire. Siegel and Overdeck still had to agree on major firm decisions — leading to stalemates when they didn’t see eye-to-eye.
Power struggles among shared leaders are littered throughout Wall Street history. Lehman Brothers co-CEOs Lewis Glucksman and Peter G. Peterson battled in the 1980s, leading to the sale of the firm.Credit: Daniel Acker
But Two Sigma, like most hedge-fund operators, is a private company. There are no outside shareholders to exert pressure, no outside governance board to broker internal disputes.
“How do you tell your bosses who don’t like each other to kiss and make up?” Jo-Ellen Pozner, associate professor of management at Santa Clara University, said in an interview. Without outside mediators, private companies can only hope their owners can resolve personal disagreements before imperiling the business.
Fresh start?
The CEOs’ decision this week — seen by some as a potential green shoots of new beginning — also raises questions over how much power the new leaders will actually wield — and whether the founders will really let go. Siegel and Overdeck remain Two Sigma’s co-chairmen, its funds’ biggest investors and owners of almost all of the firm’s equity. Some fear the same problems will persist, or that the new leaders could take sides.
Hoffman recently worked at Siegel’s family office. Overdeck, meanwhile, will step down as chief investment officer of Two Sigma Investments — he’ll be replaced by Ali-Milan Nekmouche, who has reported into him for years.
The firm said Overdeck and Siegel will stay as advisers.
Whether they’ll be able to stand each other any better is anyone’s guess. Billionaires, after all, tend to think they’re right about a lot of things.
“The social psychological literature shows that status, power and wealth create obstinacy,” Pozner, the professor, said. “People become less attuned to other’s emotional needs and resistant to the idea that they might be wrong.”
Bloomberg
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