D. E. Shaw & Co.

D. E. Shaw & Co., L.P. is a multinational investment management firm founded in 1988 by David E. Shaw and based in New York City. The company is known for developing complicated mathematical models and sophisticated computer programs to exploit anomalies in the market.[3][4] In 2018, Institutional Investor reported that among hedge funds, D. E. Shaw & Co. had delivered the fifth-highest returns in the world since its inception.[5]

For the biochemistry research company, see D. E. Shaw Research.

D. E. Shaw & Co., L.P.
Limited partnership
IndustryHedge fund
Founded1988 (1988)
FounderDavid E. Shaw[1]
Headquarters1166 Avenue of the Americas, New York City, New York, U.S.
Key people
Anne Dinning[1]
Max Stone[1]
Julius Gaudio[1]
Eric Wepsic[1]
Eddie Fishman[1]
ProductsHedge fund, private equity
AUMUS$50 billion (Mar 2019)[1]
Number of employees
1400 [2]
Websitedeshaw.com

History

1988 - 1996 - Founding & early years

The company was founded by David E. Shaw, a former Columbia University faculty member with a doctoral degree from Stanford.[6] D. E. Shaw began investing in June 1989, having secured $28 million in capital from Paloma Partners Management Co. and a couple of private investors.[4] The company's first office was small and located above a bookstore near New York University.[4] By 1990, the company had moved to a loft on Park Avenue South, and it relocated again the following year to Tower 45 on West 45th Street.[4]

From the start, the company has carefully protected its proprietary trading algorithms.[4] Many of its early employees were scientists, mathematicians, and computer programmers. Believing that recruiting would give his start-up a competitive advantage, David E. Shaw courted top-performing graduates from the nation's top ranked colleges and universities.[4] The focus of recruiting shifted to liberal arts graduates in early 1992.[4]

By the mid-90s, confidentiality was ingrained in the company culture.[4]

David Shaw has also placed heavy emphasis on risk management and the preservation of capital.[4] Portfolio managers were expected to perform risk analysis.[4] Eventually, the company would charge an executive committee and a chief risk officer with using scenario analysis and stress-testing to analyze risk at both the strategy and portfolio levels.[4]

In 1994, the company's net return was 26 percent.[4] It managed several hundred million dollars in "market-neutral strategies, including statistical arbitrage, Japanese warrant arbitrage, convertible-bond arbitrage and fixed-income trading."[4] Its non-hedge fund activities in the mid-90s included setting up a broker-dealer subsidiary, founding the e-mail provider Juno Online Services, launching an online banking and brokerage firm, and opening an office in India focused on developing software and systems to support the company's trading operations and online businesses.[4]

1997 - Collapse of a strategic alliance with Bank of America

In 1997, the firm returned capital to most of its early investors in favor of a structured credit facility of nearly $2 billion from Bank of America, with terms that allowed D. E. Shaw & Co. to keep a higher fraction of profits than hedge fund investors normally allow.[7] In effect, Bank of America provided an infusion of $1.4 billion to D. E. Shaw, hoping to benefit from the latter's investment expertise.[8] One year later, Russia defaulted on its debt, resulting in large losses for D. E. Shaw's fixed-income trading portfolio.[9] As a result, Bank of America lost $570 million due to its investment in D. E. Shaw, and paid out an additional $490 million to settle associated shareholder lawsuits.[8]

Following the collapse of this alliance, D. E. Shaw sold off business and laid off employees, reducing its core workforce from 540 employees in 1999 to 180.[4] The company's capital shrank from $1.7 billion to $460 million.[4]

2002 - Management transfer

David E. Shaw directed the company from 1988 to 2001. In 2002, he removed himself from day-to-day involvement in the company and transitioned leadership to a team of six managing directors: Anne Dinning, Julius Gaudio, Louis Salkind, Stuart Steckler, Max Stone, and Eric Wepsic.[4] The company's management structure of the same six-member executive committee remained intact through 2010.[6][10] In 2010, the company had more than 1,300 employees.[6]

2007 - Financial crisis

Multistrategy fund

At the beginning of the financial crisis in August 2007, D. E. Shaw's multistrategy fund had assets of $20 billion.[4] A third of the fund's exposure was to the equity markets and equity-linked quantitative strategies.[4] As a result, the fund lost five percent of its assets and had its worst performing month to that point in time.[4] By September 2008, the company's capital was leveraged at 4x. In the final months of 2008, subsequent gains on its then $15 billion multistrategy fund had disappeared.[4]

Credit strategies

Twenty percent of the company's assets under management were in its credit strategies and were the hardest hit during the financial crisis.[4]

Redemptions

To avoid loss of portfolio value and asset firesales, D. E. Shaw displeased some clients by preventing the withdrawal of funds during the financial crisis.[6] Those gates created time delays when clients requested that funds be returned to them.[6] By 2009, D. E. Shaw had returned about $2 billion at clients' requests.[4] One year later, the Financial Times reported that investors estimated that the company had honored an additional $7 billion in client redemption requests.[6]

Overall impact

D. E. Shaw's total assets under management fell from a high of $34 billion in 2007 to $21 billion in 2010.[3] The company had laid off 10% of its workforce at that time.[6]

Investment strategy

The company manages a variety of investment funds that make extensive use of quantitative methods and proprietary computational technology to support fundamental research in the management of its investments.[6][11][12] The company also uses qualitative analysis to make private equity investments in technology, wind power, real estate, financial services firms, and distressed company financing.[4] In addition to its financial businesses, D. E. Shaw & Co. has provided private equity capital to technology-related business ventures. Examples include Juno Online Services, an Internet access provider, and Farsight, an online financial services platform that was acquired by Merrill Lynch.[13][14]

Assets under management

Size of assets The company had $40 billion in aggregate capital[15][16] and $15.6 billion in hedge fund assets under management as of 2011. It was ranked as the 21st-largest hedge fund by Institutional Investor.[15]

Private equity

U.S. based

In 2004, a subsidiary of one of the company's funds acquired the toy store FAO Schwarz out of bankruptcy.[17] FAO Schwarz reopened for business in New York and Las Vegas in the fall of 2004. In the same year, D. E. Shaw affiliate Laminar Portfolios acquired the online assets of KB Toys, which continued operating as eToys.com.[18] In August 2004, D. E. Shaw & Co., along with MIC Capital, proposed to inject $50 million into the bankrupt WCI Steel. In December 2004, D. E. Shaw & Co. bought 6.6 percent of USG Corporation, a wallboard manufacturer seeking bankruptcy protection as a result of rising asbestos liabilities.[19]

In 2006, the Financial Times reported the firm's involvement as potential financing and investment partners for Penn National Gaming (the casino and racetrack company) as an example of the breadth of Wall Street firms' involvement in the "private equity boom," describing D. E. Shaw as "a hedge fund group."[20] The financing was required as Penn National Gaming had a market value of $3.3 billion (2006) and $1.4 billion in annual revenues and wanted to acquire Harrah's Entertainment, a company with a market value of $14.7 billion (2006) and at that time the largest US casino operator.[21]

In late 2009, the Financial Times reported that D. E. Shaw & Co. had set up a portfolio acquisitions unit, the aim of which was to acquire illiquid assets from rival hedge funds, during the financial crisis.[22]

India based

D. E. Shaw entered the Indian market in 2006,[23] with Anil Chawla, then the CEO of GE-Commercial finance, India & South East Asia, as the Country Manager. The India operations were initially headquartered in Hyderabad, Telangana. D. E. Shaw entered into several large private equity deals in the country. This included a joint-venture with India's largest private sector company, Reliance Industries, to provide financial services.[24] Other investments included real estate company DLF Assets Limited and publishing group Amar Ujala Publications, which were subject to Indian regulatory scrutiny and legal disputes.[25][26] Chawla left his position with D. E. Shaw in 2012. D. E. Shaw scaled down its private equity activities in India after 2013.[27]

Corporate structure

Ownership

Lehman Brothers

In 2007, David E. Shaw sold a 20 percent stake to Lehman Brothers as part of a broader strategy to diversify his personal holdings.[28][29] D. E. Shaw had $30 billion of assets under management in 2007.[30] At the time of its bankruptcy in September 2008, Lehman Brothers' holdings in D. E. Shaw & Co. remained intact.[31] In 2015, Hillspire, the family office of Google chairman Eric Schmidt, acquired the 20 percent passive ownership stake in DESCO from Lehman Brothers Holdings Inc.[32]

Flotation candidate

In 2007, the Financial Times reported that D. E. Shaw was commonly mentioned as a flotation candidate among hedge funds.[30]

Corporate affairs

Corporate responsibility

D. E. Shaw supports educational programs such as the American Regions Mathematics League,[33] Worldwide Online Olympiad Training (WOOT), United States of America Mathematics Olympiad and the International Mathematics Olympiad, Mathematical Olympiad Program, the MIT 6.370 Battlecode Competition,[34] and The Center for Excellence in Education.[35]

Prominent former employees

Office locations

The firm has offices in New York, Boston, Hong Kong, Hyderabad, Shanghai, London, Luxembourg, and Bermuda.

  • Hong Kong - Opened 2007 to focus on Chinese private equity[40][41]
  • India - Hyderabad - largest office outside of the U.S. with 600 employees[41]
  • USA - New York City - Headquarters
    • Silicon Valley - Menlo Park
    • Boston - Wellesley
    • Kansas City - Overland Park
    • Princeton
  • United Kingdom - Baker Street,[42] London
  • China - Shanghai - 2010[41]
  • Bermuda
  • Luxembourg

Rankings

Whilst not ranking in 2015; in 2016, D. E. Shaw Group's equity & equity linked strategy fund D. E. Shaw Valence ranked 18th on Penta's Top 100 Hedge Funds.[43] In the same ranking a multistrategy fund run by the company called D. E. Shaw Composite ranked 32nd in 2016 and placed 66th in 2015.[43]

gollark: Yes, it can run that, because it's good.
gollark: It's physically impossible to be against this.
gollark: It has fortunes, deletion, dice, arbitrary code execution and reminders.
gollark: You should only add my bot, which has good features.
gollark: I mean that "AI" isn't very well-defined and is mostly just used to describe things which are still difficult/an active area of research.

See also

References
  1. Wigglesworth, Robin (7 March 2019). "Anne Dinning returns to hedge fund DE Shaw". New York, N.Y., United States: Financial Times. Nikkei. p. 21. Retrieved 22 May 2019.
  2. "Who We Are". New York, N.Y., United States. Retrieved 13 June 2020.
  3. Gangahar, Anuj (10 September 2007). "JPMorgan fund in $20bn first-half boost". New York, N.Y., United States: Financial Times. Nikkei. Retrieved 24 May 2019.
  4. Peltz, Michael (1 March 2009). "The Power of Six" (Alpha). United States: Institutional Investor. Institutional Investor LLC. Retrieved 28 May 2014.
  5. Taub, Stephen (23 January 2018). "The Top-Earning Hedge Fund Firms of All Time". United States: Institutional Investor. Institutional Investor LLC. Retrieved 25 September 2018.
  6. Jones, Sam (28 September 2010). "DE Shaw cuts 10% of workforce". London: Financial Times. Nikkei. Retrieved 1 August 2011.
  7. Derivatives Strategy (February 1998). "Inside D. E. Shaw". Derivatives Strategy Magazine. Archived from the original on 22 October 2013. Retrieved 8 June 2013.
  8. Silva, Lauren; Cox, Rob (14 March 2007). "Bloomberg's Hidden Gem - How Rich Is Mayor Mike? Merrill Could Spill Beans If It Revalues 20% Stake". United States: Wall Street Journal. Dow Jones & Company Inc. ISSN 0099-9660. Retrieved 11 December 2019.
  9. The Battle for Wall Street: Behind the Lines in the Struggle that Pushed an Industry into Turmoil, Richard Goldberg Pub. John Wiley & Sons, 2009
  10. "Rebounding from Near Death - World's Largest Hedge Funds Have Their Sights Firmly On Institutional Dollars". Institutional Investor, Inc. May 2010.
  11. "At the Intersection of Technology and Finance". Computing in Science & Engineering (6). 1 November 1999. doi:10.1109/mcse.1999.10022.
  12. "ISM Seminar abstract". Archived from the original on 28 March 2012. Retrieved 3 August 2011.
  13. "Wall Street's King Quant David Shaw's Secret Formulas Pile Up Money. Now He Wants a Piece of the Net.", February 5, 1996, Fortune magazine
  14. Rose-Smith, Imogen (27 February 2007). "Cracking The Code". Institutional Investor. Retrieved 10 August 2011.
  15. "The 2011 Hedge Fund 100 Ranking". Institutional Investor, Inc. 12 May 2011.
  16. ""Hedge Fund 100 Ranking"".
  17. Huemer, Jason (8 August 2004). "Risks and rewards of tying the knot". Financial Times. Nikkei. Retrieved 25 May 2019.
  18. "D.E. Shaw Affiliate Acquires Online Assets of KB Toys" MultiChannelMerchant, May 14, 2004.
  19. "DE SHAW LAMINAR PORTFOLIOS LLC - Form Type: SC 13G/A)". edgar.secdatabase.com. 28 December 2004. Retrieved 25 September 2018.
  20. Politi, James; White, Ben (28 November 2006). "Penn National in audacious bid for Harrah's". New York, N.Y., United States: Financial Times. Nikkei. Retrieved 25 May 2019.
  21. Politi, James (5 December 2006). "Small fry stir corporate waters". New York, N.Y., United States: Financial Times. Nikkei. Retrieved 23 May 2019.
  22. Jones, Sam (8 February 2010). "DE Shaw eyes rival firms' distressed holdings". Financial Times. Nikkei. Retrieved 23 May 2019.
  23. "Hedge fund major to enter India" Business Standard, April 26, 2006 2006
  24. "RIL-DE Shaw brokerage business to take off this fiscal". The Times of India. 7 April 2012. Retrieved 25 September 2018.
  25. Acharya, Nupur (14 July 2011). "DE Shaw: Investment in Amar Ujala Publications Compliant With All Laws". New York, N.Y., United States: Wall Street Journal. Dow Jones & Company Inc. ISSN 0099-9660. Retrieved 19 April 2018.
  26. "D E Shaw runs afoul with RBI- again! This time on Amar Ujala deal". indianinvestorforum. 18 July 2011. Retrieved 19 April 2018.
  27. Reporter, B. S. (10 November 2012). "DE Shaw scaling down India private equity business". Business Standard India. New Delhi. Retrieved 19 April 2018.
  28. Mackintosh, James (29 April 2007). "DE Shaw mulls new private equity fund". London: Financial Times. Nikkei. Retrieved 23 May 2019.
  29. Ceron, Gaston (14 March 2007). "Lehman Buys Into D.E. Shaw, Seeking Private Money Profits". New York, N.Y., United States: Wall Street Journal. Dow Jones & Company Inc. p. C4. ISSN 0099-9660.
  30. Tassell, Tony (19 June 2007). "Global success wins star status". Financial Times. Nikkei. Retrieved 24 May 2019.
  31. Kishan, Saijel; Keehner, Jonathan (18 February 2009). "Hedge Funds Pressed to Consolidate as Losses Cut Fees". Bloomberg. Retrieved 5 December 2013.
  32. Williamson, Christine (23 April 2015). "Hillspire acquires 20% stake in D. E. Shaw Group". Pensions & Investments. Retrieved 27 March 2018.
  33. "American Regions Mathematics League". 1 August 2011.
  34. "MIT Battlecode website". Archived from the original on 1 July 2010. Retrieved 1 August 2011.
  35. "Center for Excellence in Education". Archived from the original on 25 July 2011. Retrieved 1 August 2011.
  36. Pisani, Joseph (9 January 2019). "Amazon founder Jeff Bezos announces divorce on Twitter". Las Vegas, United States: New York Daily News. Tribune Publishing Company. Retrieved 5 June 2019.
  37. Wigglesworth, Robin (1 October 2015). "Two Sigma hires ex-Google engineer as chief technology officer". Financial Times. Nikkei. Retrieved 29 May 2019.
  38. Mackintosh, James (1 June 2007). "Centaurus hires high-profile advisers". Financial Times. Nikkei. Retrieved 24 May 2019.
  39. McKinnon, John; Farnam, T. (4 April 2009). "Hedge Fund Paid Summers $5.2 Million in Past Year". New York, N.Y., United States: Wall Street Journal. Dow Jones & Company Inc. p. A3. ISSN 0099-9660. Retrieved 4 April 2009.
  40. "People: First Horse Capital/Citi Investment Research, DE Shaw/JPMorgan Chase & Co, Securities Industry and Financial Markets Association" (Alphaville). London: Financial Times. Nikkei. 1 March 2007. Retrieved 23 May 2019.
  41. Robinson, Gwen (9 March 2010). "DE Shaw and other hedgies look to Asia" (Alphaville). Financial Times. Nikkei. Retrieved 27 May 2019.
  42. Murphy, Paul (15 June 2009). "Monsters of…NW1?" (Alphaville). Financial Times. Nikkei. Retrieved 27 May 2019.
  43. Strauss, Lawrence; Uhlfelder, Eric (17 June 2017). "The Top 100 Hedge Funds - Penta Top 100 Hedge Funds". United States: Barron's. Dow Jones & Company Inc. Retrieved 5 November 2017.
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