D. E. Shaw & Co., L.P. is a global investment[1] and technology development firm based in New York, New York whose activities center on many aspects of the intersection between technology and finance. The firm was founded by David E. Shaw, who was formerly a faculty member in the computer science department at Columbia University. The firm, through various affiliates, specializes in applying quantitative and qualitative trading strategies to hedge fund management and other investments. It makes private equity investments in early-stage and established firms involved in technology, health care, and financial services. It also acquires assets of distressed companies. The company's D. E. Shaw Research unit focuses on long-term scientific and technological projects.
As recently as August 2008, the firm, described by Fortune in 1996 as "the most intriguing and mysterious force on Wall Street,"[2] managed nearly $40 billion in aggregate capital,[3] making it one of the world's largest hedge funds by assets under management.[4] As of October 1, 2010 the company managed approximately $20 billion in investment and committed capital.[3]
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 Shaw to keep a higher fraction of profits than hedge fund investors normally allow. Bank of America merged with NationsBank soon thereafter, and in the banks' due diligence for their merger, David Coulter, the CEO of Bank of America, said that his firm had no hedge fund exposure. After the Russian debt default in 1998, Shaw, like Long-Term Capital Management (LTCM) and many other hedge funds, suffered significant losses in its fixed-income trading. Bank of America took a $370 million writedown, Coulter lost his job, and the new management of the bank later declined its option to renew the credit facility.
Shaw suffered a couple of lean years thereafter, but attracted new investors as its investment performance recovered.
Many of D. E. Shaw's recent headline-making transactions deal with investing in bankrupt companies with valuable assets.[citation needed] In December 2003, a subsidiary of one of the D. E. Shaw group funds acquired famed toy store FAO Schwarz, which reopened for business in New York and Las Vegas in the fall of 2004. In the same year, D. E. Shaw affiliate Laminar Portfolios also acquired the online assets of KB Toys, which continued operating as eToys.com.[5] In August 2004, D. E. Shaw along with MIC Capital, proposed to inject $50M into the bankrupt WCI Steel. In December 2004, Shaw bought 6.6% of USG Corp, a wallboard manufacturer seeking bankruptcy protection as a result of rising asbestos liabilities.
Lawrence Summers, who served as Secretary of the Treasury during the Clinton administration, resigned as president of Harvard University in 2006 and started the same year as a managing director at D.E. Shaw. Summers had helped negotiate a bailout of hedge fund LTCM while with Treasury in 1998.[6] In 2008 Summers left D.E. Shaw after being appointed Assistant to the President for Economic Policy and Director of the National Economic Council, by then-President-Elect Barack Obama.[7] Summers received at least $5.2 million in compensation from Shaw, according to the first year's reporting of income when he returned to government service, in a 2009 report.[8]
In addition to its financial businesses, the D. E. Shaw group has also provided private equity capital to technology-related business ventures, most famously to Juno Online Services, which grew to become one of the nation’s largest Internet access providers.
In 2007, David Shaw sold a 20% minority stake in the Shaw group to Lehman Brothers, as part of a broader strategy to diversify his own holdings.
Early in 2010 D.E. Shaw set up its Portfolio Acquisitions Unit, the aim of which is to acquire many illiquid assets from rival hedge funds. These assets which are trading at steep discounts, are so-called "side-pocketed" assets.[9]
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