VC and Hedge Fund as fraternal twins
New just came out that Sequoia and Paradigm bought $1.15B worth of stakes from Citadel Securities, founded by hedge fund giant Ken Griffin.
In light of the recent move by Sequoia to a one-fund model, most journalists see this as a natural move for the now SEC-registered asset management company to add different assets into its portfolio. For me it only validated my long-time claim that VC and Hedge Fund are the same animals, in the sense that both are pro-volatility and transact on options (real and financial, respectively). It was already famously evident for about a decade now as we witness Tiger Global evolving into a major VC player. On the back of this recent deal it’s safe to claim that VCs and hedge fund guys will find themselves rubbing shoulders more and more intimately in the future.
Let’s put it this way figuratively:
VC and Hedge Fund are basically fraternal twins
Of course there’s an angle to argue that Sequoia does this to diversify its portfolio (in the boring way of Modern Portfolio Theory), but you haven’t and probably will never see Sequoia moving into bonds or broad-market-based ETFs. It was probably more the animal instincts shared between the two that brought them together.
As described above, Citadel Securities, though a sidecar to Griffin’s prestigious hedge fund, has become dominant in market making for options. To achieve this it obviously requires superior data science as well as market acumens. In fact one can also argue that this investment is a technological investment, as most of the top players in the hedge fund industry such as Renaissance are all very advanced in data science and machine learning.
In any case this is yet another evidence showing how VC has come a long way from a subset of the PE asset classes to be making market-shaking moves in the general finance world. As the financial world gets more and more volatile and power-law looking, it’s only a matter of time that VC becomes a major asset class of its own, with a potpourri portfolio of not just VC funds but also stock options and anything that’s long-volatility.
