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D. E. Shaw & Co.

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

D. E. Shaw & Co., L.P.
Company typeLimited partnership
IndustryHedge fund
Founded1988; 36 years ago (1988)
FounderDavid E. Shaw[1]
Headquarters1166 Avenue of the Americas, New York City, New York, U.S.
Key people
Anne Dinning
Max Stone
Eric Wepsic
Eddie Fishman
Alexis Halaby
Edwin Jager[2]
ProductsHedge fund, Private equity
AUMUS$60 billion (Dec 2022)[3]
Number of employees
2,500 (2022)[4]
Websitedeshaw.com

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 computer programs to exploit anomalies in financial markets.[5] As of December 1, 2023, D. E. Shaw has $60 billion in AUM, including alternative investments and long strategies.[6]

History

1988–1996: Founding and early years

The company was founded by David E. Shaw, a former Columbia University computer science professor with a PhD from Stanford University.[7] D. E. Shaw began investing in June 1989, having secured $28 million in capital from Donald Sussman's Paloma Partners and several private investors.[8] The company carefully protected its proprietary trading algorithms. Many of its early employees were scientists, mathematicians, and computer programmers.

In 1994, the company's net return was 26 percent. It managed several hundred million dollars in "market-neutral strategies, including statistical arbitrage, Japanese warrant arbitrage, convertible-bond arbitrage and fixed-income trading."[9] Its non-hedge fund activities in the mid-90s included setting up a broker-dealer subsidiary, founding the email 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.[8]

1997: 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.[10] 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.[11] One year later, Russia defaulted on its debt, resulting in large losses for D. E. Shaw's fixed-income portfolio.[12] 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.[11]

Following the collapse of this alliance, D. E. Shaw laid off employees, reducing its workforce from 540 employees in 1999 to 180. The company's capital shrank from $1.7 billion to $460 million.[9]

2002: Management transfer

David E. Shaw directed the company from 1988 to 2001. In 2002, he removed himself from day-to-day involvement in order to focus on D. E. Shaw Research and transitioned leadership of day-to-day activities to a team of six of the firm's senior managing directors.[13] The same six-member Executive Committee of Anne Dinning, Julius Gaudio, Louis Salkind, Stuart Steckler, Max Stone, and Eric Wepsic remained intact until 2012 when Steckler retired.[14]

2007: Financial crisis

Multi-strategy fund

At the beginning of the financial crisis in August 2007, D. E. Shaw's multi-strategy fund had assets of $20 billion. A third of the fund's exposure was to the equity markets and equity-linked quantitative strategies. As a result, the fund lost five percent of its assets and had its worst-performing month to that point in time. By September 2008, the company's capital was four times leveraged. In the final months of 2008, gains on its then $15 billion multi-strategy funds were lost.[9]

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.[9]

Redemptions

To avoid further loss of portfolio value and asset fire sales, D. E. Shaw temporarily halted withdrawal of funds. This displeased some investors as there were time delays when they requested return of their funds.[7] By 2009, D. E. Shaw had returned about $2 billion at clients' requests.[9] One year later, the Financial Times reported that investors estimated the company had honored an additional $7 billion in client redemption requests.[7]

Overall impact

D. E. Shaw's total assets under management fell from a high of $34 billion in 2007 to $21 billion in 2010.[5] The company had 1,300 employees, a reduction of 10% of its workforce.[7]

2019: Non-compete agreements

In September 2019, D. E. Shaw required all of its employees to sign non-compete agreements, which was common among asset management companies but not previously required at the firm. This was not received favorably by some employees.[15]

2023

In 2023, D. E. Shaw was charged with a penalty of $10 million by the SEC for having its employees sign confidentiality disclosure agreements from 2011-2023, without including whistleblowing rights.[16][17]

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.[7][18][19] The company also uses qualitative analysis to make private equity investments in technology, wind power, real estate, financial services firms, and distressed company financing.[9] D. E. Shaw & Co. has also 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.[20][21]

Assets under management

The company had $40 billion in aggregate capital[22][23] and $15.6 billion in hedge fund AUM as of 2011. As of June 1, 2021, the company more than tripled in size with $55 billion in AUM, $35 billion of which are alternative investments and the remaining $20 billion long investments.[24] It was ranked as the 21st-largest hedge fund by Institutional Investor in 2011.[22] By 2020, D. E. Shaw & Co. was ranked as the 10th-largest hedge fund globally by discretionary AUM.[25]

Private equity

U.S.

In 2004, a subsidiary of one of the company's funds acquired the toy store FAO Schwarz after it had filed for bankruptcy.[26] 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.[27]

In 2006, the Financial Times reported the firm's involvement as a potential financing and investment partner 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."[28] 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.[29]

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.[30]

India

D. E. Shaw entered the Indian market in 2006,[31] 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.[32][33] 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.[34][35] Chawla left his position with D. E. Shaw in 2012.

D. E. Shaw scaled back its private equity activities in India after 2013.[36]

Corporate structure

Management

Currently, the Executive Committee comprises Anne Dinning, Max Stone, Eric Wepsic, Eddie Fishman, Alexis Halaby, and Edwin Jager.[37] The firm has 2,500 employees.[6]

Ownership

In 2007, David Shaw sold a 20 percent stake to Lehman Brothers as part of a broader strategy to diversify his personal holdings;[38] D. E. Shaw had $30 billion of assets under management in 2007.[39] At the time of its bankruptcy in September 2008, Lehman Brothers' holdings in D. E. Shaw & Co. remained intact.[40]

In 2015, Hillspire, the family office of Google chairman Eric Schmidt, acquired the 20 percent passive ownership stake in D. E. Shaw & Co. from the bankruptcy estate of Lehman Brothers Holdings Inc.[41]

Corporate affairs

Corporate responsibility

D. E. Shaw supports educational programs such as the American Regions Mathematics League,[42] United States of America Mathematical Olympiad, the International Mathematical Olympiad, Mathematical Olympiad Program, and The Center for Excellence in Education.[43]

Office locations

The firm has offices in the United States, India, China, Singapore, England, Luxembourg, and Bermuda.[citation needed]

Defamation lawsuit

In 2022, D. E. Shaw was ordered to pay $52 million to a former employee after a defamation lawsuit.[44]

See also

References

  1. ^ "Who We Are - Founder". New York, N.Y., United States. Retrieved 13 June 2020.
  2. ^ Butcher, Sarah (13 December 2023). "Hedge fund DE Shaw is losing one of its most beloved leaders". eFinancialCareers. Retrieved 26 March 2024.
  3. ^ "What We Do". New York, N.Y., United States. Retrieved 1 March 2023.
  4. ^ "Who We Are". New York, N.Y., United States. Retrieved 13 May 2020.
  5. ^ a b Gangahar, Anuj (10 September 2007). "JPMorgan fund in $20bn first-half boost". Financial Times. New York, N.Y., United States. Nikkei. Retrieved 24 May 2019.
  6. ^ a b "D. E. Shaw group". The D. E. Shaw group. Retrieved 26 May 2024.
  7. ^ a b c d e Jones, Sam (28 September 2010). "DE Shaw cuts 10% of workforce". Financial Times. London. Nikkei. Retrieved 1 August 2011.
  8. ^ a b Celarier, Michelle (18 January 2018). "How a Group of Computer Geeks and English Majors Transformed Wall Street". Intelligencer. Retrieved 26 March 2024.
  9. ^ a b c d e f Peltz, Michael (1 March 2009). "The Power of Six". No. Alpha. Institutional Investor. Institutional Investor. Retrieved 28 May 2014.
  10. ^ Derivatives Strategy (February 1998). "Inside D. E. Shaw". Derivatives Strategy Magazine. Archived from the original on 22 October 2013. Retrieved 8 June 2013.
  11. ^ a b 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". The Wall Street Journal. Dow Jones & Company Inc. ISSN 0099-9660. Retrieved 11 December 2019.
  12. ^ The Battle for Wall Street: Behind the Lines in the Struggle that Pushed an Industry into Turmoil, Richard Goldberg Pub. John Wiley & Sons, 2009
  13. ^ "Rebounding from Near Death - World's Largest Hedge Funds Have Their Sights Firmly on Institutional Dollars". Institutional Investor, Inc. May 2010.
  14. ^ Taub, Stephen (12 June 2012). "D.E. Shaw Finance Director to Retire". Institutional Investor. Retrieved 26 March 2024.
  15. ^ "Take the Gardening Leave". Bloomberg.com. 28 August 2019. Retrieved 24 December 2020.
  16. ^ McDevitt, Aly (29 September 2023). "D. E. Shaw fined $10M for impeding potential whistleblowers". Compliance Week. Retrieved 9 July 2024.
  17. ^ Shazar, Jon (2 October 2023). "D.E. Shaw Can Keep Its Secrets, But Not From The SEC". Dealbreaker. Retrieved 9 July 2024.
  18. ^ "At the Intersection of Technology and Finance". Computing in Science & Engineering (6). 1 November 1999. doi:10.1109/mcse.1999.10022.
  19. ^ "ISM Seminar abstract". Archived from the original on 28 March 2012. Retrieved 3 August 2011.
  20. ^ "Wall Street's King Quant David Shaw's Secret Formulas Pile Up Money. Now He Wants a Piece of the Net.", 5 February 1996, Fortune magazine
  21. ^ Rose-Smith, Imogen (27 February 2007). "Cracking The Code". Institutional Investor. Archived from the original on 28 March 2012. Retrieved 10 August 2011.
  22. ^ a b "The 2011 Hedge Fund 100 Ranking". Institutional Investor, Inc. 12 May 2011.
  23. ^ "Hedge Fund 100 Ranking".
  24. ^ "D. E. Shaw group". The D. E. Shaw group. Archived from the original on 26 September 2019. Retrieved 1 June 2021.
  25. ^ "The largest hedge fund managers 2020". Pensions & Investments. 21 September 2020. Retrieved 26 July 2021.
  26. ^ Huemer, Jason (8 August 2004). "Risks and rewards of tying the knot". Financial Times. Nikkei. Retrieved 25 May 2019.
  27. ^ "D.E. Shaw Affiliate Acquires Online Assets of KB Toys" Archived 14 July 2011 at the Wayback Machine MultiChannelMerchant, 14 May 2004.
  28. ^ Politi, James; White, Ben (28 November 2006). "Penn National in audacious bid for Harrah's". Financial Times. New York, N.Y. Nikkei. Retrieved 25 May 2019.
  29. ^ Politi, James (5 December 2006). "Small fry stir corporate waters". Financial Times. New York, N.Y. Nikkei. Retrieved 23 May 2019.
  30. ^ Jones, Sam (8 February 2010). "DE Shaw eyes rival firms' distressed holdings". Financial Times. Nikkei. Retrieved 23 May 2019.
  31. ^ "Hedge fund major to enter India" Business Standard, April 26, 2006 2006
  32. ^ "RIL-DE Shaw Venture". Times Of India. Mumbai. 26 May 2011. Retrieved 26 March 2024. Louis Salkind, managing director and member of the Executive Committee of DE Shaw in Mumbai: The Reliance Industries (RIL) enters a joint venture with DE Shaw to offer financial services in the Indian market.
  33. ^ "RIL-DE Shaw brokerage business to take off this fiscal". The Times of India. 7 April 2012. Retrieved 25 September 2018.
  34. ^ Acharya, Nupur (14 July 2011). "DE Shaw: Investment in Amar Ujala Publications Compliant With All Laws". The Wall Street Journal. New York, N.Y. Dow Jones & Company. ISSN 0099-9660. Retrieved 19 April 2018.
  35. ^ "D E Shaw runs afoul with RBI- again! This time on Amar Ujala deal". indianinvestorforum. 18 July 2011. Retrieved 19 April 2018.
  36. ^ "DE Shaw scaling down India private equity business". Business Standard India. New Delhi. 10 November 2012. Retrieved 19 April 2018.
  37. ^ "D.E. Shaw Names Second Woman to Hedge Fund's Executive Committee". www.bloomberg.com. 24 June 2021. Archived from the original on 26 July 2021. Retrieved 26 July 2021.
  38. ^ Mackintosh, James (29 April 2007). "DE Shaw mulls new private equity fund". Financial Times. London. Nikkei. Retrieved 23 May 2019.
  39. ^ Ceron, Gaston (14 March 2007). "Lehman Buys into D.E. Shaw, Seeking Private Money Profits". The Wall Street Journal. New York, N.Y. Dow Jones & Company Inc. p. C4. ISSN 0099-9660.
  40. ^ Kishan, Saijel; Keehner, Jonathan (18 February 2009). "Hedge Funds Pressed to Consolidate as Losses Cut Fees". Bloomberg. Retrieved 5 December 2013.
  41. ^ Williamson, Christine (23 April 2015). "Hillspire acquires 20% stake in D. E. Shaw Group". Pensions & Investments. Retrieved 27 March 2018.
  42. ^ "American Regions Mathematics League". 1 August 2011.
  43. ^ "Center for Excellence in Education". Archived from the original on 25 July 2011. Retrieved 1 August 2011.
  44. ^ "DE Shaw, execs must pay $52 mln to ex-money manager, arbitration panel says". Reuters. Retrieved 19 February 2024.
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