D.E. Shaw, the über-geeky New York hedge fund that stumbled after moving into real estate and private equity, is back on its game.
This year, Shaw has had the biggest asset growth among the top 20 hedge fund firms in Absolute Return’s Billion Dollar Club, which tracks the biggest hedgies twice a year.
Shaw added $2.4 billion to its hedge-fund coffers this year, a 14 percent gain, bringing its assets to $19.4 billion as of July 1, according to the ranking out today.
Hedge funds in general have had a sluggish year, with only half of funds earning more than 3 percent through July. The industry’s asset growth is not quite as lackluster. US hedge funds managing more than $1 billion now number 268, gaining 6 percent since January to $1.42 trillion. That’s still way below peak assets of $1.68 trillion in mid-2008.
Likewise, Shaw is not the giant it was right after the crash of 2008, when it ranked fourth and ran $28.6 billion. The firm refused to let investors take out their money, and when it finally opened up in 2010, it lost nearly 40 percent of its assets. In 2011, it ranked as one of the biggest losers.
Since then, Shaw cut fees and exited some of the real estate, private equity and venture capital positions that had dragged it down. It has also launched several new funds, including a $1.6 billion macro fund called Heliant that has gained 10 percent this year.
Now, Shaw is the 11th-biggest US hedge fund firm. Its comeback has been largely driven by stellar returns in its $9 billion Oculus fund. Helped by a heavy dose of leverage, Oculus uses a combination of computer models and human expertise to invest in markets around the globe. That fund jumped 9.7 percent through July, after a 19.6 percent gain in 2011.
“An established firm like D.E. Shaw, if it can keep performance humming, is going to vacuum up money in today’s environment,” said AR’s Rob Copeland, who compiled the survey.
“D.E. Shaw is full of experienced guys that one should never underestimate,” added Mike Hennessy, whose firm Morgan Creek Capital Management is an investor in the fund.
Shaw got its start as a “quant” shop known for employing mathematicians and PhDs to perform sophisticated market analysis.
Seventh-ranked Renaissance Technologies, a purely quant firm, has also had a big comeback, gaining $2 billion this year. Its equities fund, Renaissance Institutional Equities Fund, rose about 10 percent during the first half, after a 34 percent gain last year. Its investors lost money in 2007, 2008 and 2009.
In 2007, quant funds had a minicollapse, the first sign of the doom that would descend on markets a year later. The quant models led them to dump the same stocks and bonds at the same time, a fall exacerbated by their high levels of leverage. Since then, many have reduced their borrowing.
“Quant is doing well so far this year,” said another quant investor, saying stocks and other assets aren’t moving in lockstep as much they have in the past, allowing quant funds to differentiate themselves.