The strategies 4 hedge funds are using to invest in hot startups and get an edge over VCs

• Hedge funds, known for their public investments, are turning to private markets to boost returns.
• They’re using quant strategies, data science, and partnerships to gain an edge in investing.
• Investors at funds like Two Sigma, D.E. Shaw, and Point72 told us how they source the best startups.

Hedge funds, long considered the world’s best public market investors, have been losing their edge. Quants are squeezing out inefficiencies while funds struggle to justify their cost.

In turn, these managers have turned to the murkier private markets to boost returns. Like in the public markets, strategies run the gambit.

At biotech specialist Perceptive Advisors, Chris Garabedian looks for startups at the beginning of their lifespans with limited track records. D.E. Shaw has put money to work overseas, including in China. Point72’s Hyperscale fund uses artificial intelligence to supercharge its portfolio companies’ operations. Two Sigma uses its data science expertise to predict winners in nascent industries.