David Shaw

Average Annualised Returns:

Born March 29 1951, David Shaw is an American Computer Scientist and computational biochemist whose fund has been described a ‘the most intriguing and mysterious force on Wall Street’ (Forbes). David received a bachelor’s degree summa cum laude form the University of California, San Diego and then went on to obtain a PhD. from Stanford in 1980.

In 1986 he joined bank Morgan Stanley, as the vice president for technology in Nunzio Tartaglia’s automated proprietary trading group. He funded his hedge fund DE Shaw & Co in 1988, which uses proprietary algorithms for security trading. He was appointed by President Clinton to the Council of Advisors on Science and Technology in 1994, and has since been re-appointed to the same role in the Obama administration.

Investment Philosophy

The firm uses quantitative mathematical techniques and large amounts of computing power to identify profit opportunities in “pockets of anomalies”. Its investment portfolio is dynamic and constantly changing based on where the profit is, what the risk is and what the transaction costs are.

Trading in the firm is done almost round the clock, with tens of thousands of transactions being completed per day as portfolios are continuously re-optimized. This level of activity is a natural consequence of the core trading philosophy of the company, relying on the analysis of very large amounts of data from many countries, and applied to many asset classes. The firm continues to use proprietary computing models and strategies, developed according to D. E. Shaw “at a cost of hundreds of millions of dollars.” The software is written with the aim of integrating the complex interlinks between large numbers of different financial instruments to identify the pockets of opportunity referred to above.

On the other hand, the company looks to qualitative trading as a source of growth for its activity. In this case, human judgment is paramount in successful investment. Flexible financial engineering then allows the company to create solutions rapidly for financing requirements for different investment projects. Preferred or common equity, and senior, mezzanine or convertible debt are all instruments that are deployed according to requirements. The company also develops innovative research methods outside other mainstream approaches to support qualitative investment approaches in areas where it has extensive in-house experience relating to the sector concerned.

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