XTX Markets, the algorithmic trading giant known for its dominance in foreign exchange and equities, is making a significant push into private markets. The firm is allocating hundreds of millions of dollars to private equity, venture capital, and other alternative assets, according to people familiar with the matter. This move marks a strategic diversification for the firm, which has traditionally focused on high-frequency trading.
Why Private Markets?
The decision to invest in private markets is driven by a desire to deploy capital in less efficient, higher-return opportunities. XTX has built a team of investment professionals to source and manage these deals. The firm's co-founder and CEO, Alex Gerko, has emphasized the importance of finding uncorrelated returns. “We are not just looking for beta; we want alpha,” Gerko said in a statement. The firm is targeting investments in technology, healthcare, and other sectors where it can leverage its quantitative expertise.
Scale of Investment
While XTX has not disclosed the exact amount, sources indicate the firm has committed over $500 million to private market strategies. This includes direct investments in startups, as well as stakes in private equity funds. The firm has also hired several senior figures from traditional asset managers to lead the effort. This is a significant shift for XTX, which historically has been one of the most secretive and profitable trading firms in the world.
Impact on the Firm
The move into private markets could help XTX reduce its reliance on volatile trading revenues. In 2022, the firm generated over $1 billion in trading profits, but such profits can fluctuate wildly. Private market investments offer longer-term, more stable returns. However, they also come with liquidity and valuation risks. XTX plans to hold these investments for several years, aligning with the typical private equity horizon.
Industry Context
XTX is not alone in this trend. Other quantitative trading firms, such as Citadel Securities and Two Sigma, have also expanded into private markets. The allure of higher returns and diversification is strong, especially in a low-interest-rate environment. However, the private markets are becoming increasingly crowded, and valuations have risen sharply. XTX will need to be selective to generate the outsized returns it seeks.
Overall, XTX's foray into private markets represents a new chapter for the firm. With its deep pockets and quantitative prowess, it could become a significant player in the space. But the move also carries risks, and it remains to be seen how the firm's trading culture will adapt to the longer time horizons of private investing.
