The DE Shaw Paradox

Chidem Kurdas

DE Shaw Group is among the most highly regarded managers. Its funds are to be found in the largest portfolios, whether belonging to institutions or individuals.

So I find the following history somewhat surprising. In 2008, DE Shaw was reported to have about $37 billion in assets under management. Its flagship macro fund, Oculus, performed exceptionally well in the crisis, making profits when almost everybody else lost their shirt. Even so, investors wanted to redeem a lot and like many fund managers at the time DE Shaw brought down the gates to limit withdrawals.

By the end of 2011, the firm was down to around $23 billion under management, despite great performance by Oculus that year. A new global macro fund, Helios, was launched in 2010 with slightly lower fees, easier redemption provisions and more transparency. Helios and a composite DE Shaw fund, as well as Oculus, appear to be popular with investors.

As of this April, DE Shaw had $30 billion. It is still one of the largest hedge fund managers but assets remain well below the 2008 mark, despite some spectacular performance.

This is emblematic of the current situation of the hedge fund industry. There was a net outflow in 2012, with heavy withdrawals in December, according to Barclay Hedge and TrimTabs. Inflows remain weak.

And no wonder, as far as the big picture is concerned. Stock markets dwarfed overall hedge fund performance—at least until the recent couple of weeks. What it suggests is that investors withdrawing from hedge funds may be heavily influenced by industry performance, even though particular managers did much better.

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