DE Shaw: Going Institutional, Going For the Gold

I have long thought that DE Shaw is an amazing firm. Institutional Investor recently had one of the better articles I've read on David's business, where it has been and where it is going. It just reminded me that they are at the forefront of much of what's going on with the largest hedge funds, and have an impressive array of assets with which to build a leading institutional asset management firm:

• An attractive 18-year track record;
• The experience of getting rocked - hard - surviving, and emerging smarter and stronger than before;
• A "best athlete" orientation and a commitment to recruiting excellence, hiring the best from a wide variety of domains to create a team of superior intellect and breadth;
• Consistency in firm vision and leadership; and
• The creation and development of a broad-based management team that takes the risk out of single-manager governance.

And so, exactly, how are these strengths being brought to bear on growing the already-massive $29 billion DE Shaw business?

• Using its long/short quantitative excellence to drive a mega-capacity, long-only institutional product (DESIM);
• Using this same experience base to bring out a large capacity long/short "lite" product - the 130/30 structure so popular with institutions today; and
• Leveraging its risk management expertise to expand into other hedge fund strategies, i.e., currency, commodities, real estate, distressed and private equity.

All of these items, taken together, point to a single fact: David is building the business for the long run, taking advantage of demographic and market trends to apply his team's skills in a much comprehensive way than in the past. This means developing into a true institutional asset management complex, with the ability to take the management company public, individual funds public, or to remain private and maintain the status quo. None of these are bad outcomes. It's just that by building the business the right way - which largely means hiring, incentivizing and retaining the best people and giving them input into long-term strategy - the market will come to DE Shaw. And it has. And it will.

Comments

[Yaser Anwar]

Sir:

Do you think DE Shaw will venture into creating a model similar to a HF Hotel and the sort Tudor and Moore have adopted- where they provide expertise in risk management and business aspects to HFs.

The best example I can think of is Ospaire (run by super FM Dwight Anderson), which started of under Tudor Investments, after rejecting bids made by SAC and Moore.

Great posts!! Keep 'em coming.