One of the most exclusive quantitative hedge funds is becoming even more private, closing the velvet ropes to a strategy containing some of its best trading algorithms.

PDT Partners, led by Peter Muller, has been returning money to investors in recent months and plans to manage its flagship strategy exclusively for employees, friends and family, people familiar with the matter said. The move relegates outside investors to funds using less profitable strategies, often based on longer-term trading signals.

The $6 billion firm said this year in regulatory filings that its main fund is “capacity constrained” and has periodically forced some investors to redeem money.

“Within a few years (and possibly sooner), we expect that all or almost all external investors in the PDT Partners Fund family (with the possible exception of certain friends and family investors) will be mandatorily redeemed in full,” PDT wrote in the filings.

PDT declined to comment through an external spokesperson.

With the move, PDT joins other systematic hedge funds that have made their best strategies off-limits to outside investors. D. E. Shaw & Co., Renaissance Technologies and Two Sigma are among the firms that have created proprietary funds from strategies previously available to clients, according to people familiar with the firms.

Renaissance, the more than $60 billion quantitative hedge fund founded by former mathematics professor Jim Simons, has barred external investors from its trademark Medallion fund since 2005. Its closest proxy, the Renaissance Institutional Equities Fund, has consistently lagged Medallion’s performance.

Those divisions can create conflicts of interest between employees and clients, PDT and others caution. PDT says in filings it has created a “Conflicts Committee” to help resolve issues between its funds.

PDT began as the process-driven trading group at Morgan Stanley, making average annual returns of more than 20%. The group raised more than $2 billion as an independent firm after Dodd-Frank rules pushed Morgan Stanley and other banks to shed their proprietary trading divisions.

The firm’s main fund, PDT Partners, focuses on short-term and longer-term trades in stocks, futures and other derivatives, employing teams of mathematicians and scientists developing new signals based on pricing data and fundamental factors, such as earnings. Another fund, PDT Mosaic, uses many of the same algorithms except for the most fast-twitch trading signals.

In filings, PDT says the flagship fund has made higher returns than its other strategies and is expected to do so in the future. The fund has priority access to newly developed investment strategies and may even trade ahead of other PDT funds, according to the filings.

PDT’s main fund gained 26.7% last year and averaged more than 20% in the three years through 2018, according to one investor. PDT Mosaic made less than half of those performance gains last year, returning 12.6%, according to the investor.

It is unclear how soon PDT plans to remove the remaining clients from its flagship fund. Employees and related people made up the majority of its money earlier this year, according to regulatory filings.

One investor, the Teacher Retirement System of Texas, received more than $220 million back from the PDT Partners fund through the end of last year after investing an initial $125 million in 2012, according to documents obtained through public records requests. The pension also committed $175 million in 2016 to the PDT Mosaic fund, which had not returned any money, according to the documents.

Blackstone committed $500 million to PDT in 2012 without taking a stake in the firm, which it commonly does with investments of that size. A Blackstone spokesperson declined to comment on whether the investor has been affected by the changes.

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