It’s Official: Hedge Fund DE Shaw Is Losing Its Luster


After a bad year that might have made some investors re-consider their investments in the the huge quant fund, DE Shaw made it cheaper for investors by lowering some of its fees.

DE Shaw’s 3% management fees were cut to 2.5%, and 30% performance fees were cut to 25%, according to Reuters.

An investor tells us that the fee cuts were in only the fund’s main Composite fund, but regardless, the move feels like the firm’s admitting that it’s has lost a bit of its cred recently. Let’s review how they’ve fallen.

In 2009, DE Shaw’s main fund gained 19.9%, but the S&P 500 rose 26.5%. 

By mid 2009, its assets had dropped from $39 billion in mid-2008 to $29 billion under management. By the end of 2009, DE Shaw’s UK and Dubai units had lost $14.23 million.

Then in 2010, its assets were down again, this time to $21 billion. 

And months ago, news got out that the firm laid off 10%. 

We investigated about the layoffs a bit and heard that the firm might have actually cut 25% of employees. The firm wouldn’t comment, but we speculate that (if the cuts happened – our source could have been wrong) the cuts were in their Dubai units, where the gossip might have been easier to contain.

We also heard that the layoffs disproportionately cut real estate, which was later partially explained by a ridiculous venture that DE Shaw attempted in 2006, when they tried to create a town.

So of course, we have to assume that DE Shaw got caught up in the real estate craze, thought land prices would continue to rise forever. It all looks really bad because it shows some questionable judgment from the fund, whose lead hedge fund manager, David Shaw, is now retired. (The place is now run by Anne Denning and Max Stone.)

Investors are clearly wondering if the firm has lost its luster. 

Months ago, when DE Shaw had been “gating” investors funds (aka limiting investors’ access to their cash and not letting them take it out), one slightly scorned investor told Reuters: “We haven’t seen an investor-friendly process.”

By the end of 2010, DE Shaw’s main fund had gained only 2.5% for the year, and investors learned that portfolio manager Daniel Posner, would be leaving the firm (he went to Golub Capital).

DE Shaw’s performance is still pretty great, but it’s not the behemoth of profits it used to be. Now the firm has cut its fees. The fee cuts should provide an incentive for them to stick around and hope that the fund returns to the blockbuster returns they earned a few years ago.