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Israel Englander | Main | Paul SingerDavid Shaw D.E. Shaw & Co. Founded in 1988 $22.9 million (what $1 million invested on |
day one would be worth now)
David Shaw has always considered himself a scientist first and foremost. When he decided in 1986 to leave his position teaching computer science at Columbia University to join the automated proprietary trading group at Morgan Stanley, he was attracted by the opportunity to try something different and the chance to significantly increase his net worth. Two years later Shaw left Wall Street, but he didn't return to academia. Instead, he hooked up with fellow Hall of Famer S. Donald Sussman, whose firm, Paloma Partners, staked him $28 million to start D.E. Shaw & Co., a quantitative-based hedge fund firm. Known as much for its secretiveness as for its consistently strong risk-adjusted returns (13.6 percent annualized after fees from 1989 through July 2013), D.E. Shaw made it cool to be a quant, recruiting top Ph.D.s in math, physics and other sciences to work on its sophisticated investment models and teaching them finance. Although D.E. Shaw endured its share of adversity, losing $200 million in proprietary capital in 1998 after the near-collapse of hedge fund firm Long-Term Capital Management, it has persevered by adhering to its founder's core values, putting integrity ahead of profits. Shaw has solved what is arguably the hedge fund industry's most challenging problem: management succession. By 2001, Shaw had transitioned himself out of the day-to-day management of the firm. Today it is run by a five-person executive committee, which oversees $31 billion in assets across a variety of quantitative and qualitative investment strategies. The 62-year-old Shaw has returned to his first love as chief scientist at D.E. Shaw Research, a 100-person lab he founded that is designing special-purpose supercomputers to simulate the motions of biologically relevant molecules. "We couldn't be sure until we actually started trading whether our system would work as well as we expected.
But it did." -- David Shaw
Alpha: How did you persuade investors to give you money to start a quantitatively based hedge fund firm after just two years at Morgan Stanley?
Shaw: I was introduced to Donald Sussman, and he really understood this sort of thing. He believed in the...