Mega Hedge Fund DE Shaw Cuts 10% Of Staff Following $7 Billion In Redemptions
First Meredith Whitney highlighted the insult facing the banking industry this quarter as a result of the dearth of trading volume. Now quant hedge fund extraordinaire DE Shaw, which prides itself on hiring something like one in a thousand math geniuses, and only after they sign an NDA during interviews, has added the injury, by being the canary in the hedge fund coalmine, and letting 150, or 10%, of its highly paid workforce, go. And that's not all: after finally unlocking its "gates" the fund's AUM has plunged by $7 billion to $28 billion. This can not be good, as it means that the fund has had to unwind tens of billions in hedged positions over the past weeks. And if the fund's slant was bearish previously it may well have been responsible for the rapid move in the stock market, as its semi-forced liquidation would have seen it need to cover an abnormal amount of shares in a thin market, in which players like SAC and DE Shaw already account for a material fraction of total volume.
The FT is on the case:
Significant job cuts have been announced in New York and London, people familiar with the firm told the Financial Times, with further redundancies expected across the firm’s global operation in the coming weeks.
The move comes amidst one of the hedge fund industry’s most disappointing years on record and reflects the degree to which even the largest managers have struggled to maintain their profitability.
According to Hedge Fund Research, the average hedge fund has returned just 1.45 per cent so far this year.
The cuts at DE Shaw, some of the deepest in the firm’s history, follow a strategic review undertaken by management as a result of large investor outflows this year.
DE Shaw has suffered an estimated $7bn in redemptions over the past few months, according to investors.
As of September 1, the firm managed about $21bn across its range of funds.
Unfortunately, as we speculated in late August, and as DE Shaw demonstrates, a big portion of the hedge fund industry's fate now rests in the hands of the market ramp. Which is why a few more gray swan events like the GMCR announcement today (which will force all 9 sellside analysts covering the company to get bearish on the name and make the slow manager managers currently involved reevaluate their stance) could easily throw the entire rally overboard, as the falling dominoes of forced liquidations spread like bifurcated Lorenzian charts, impacting anything and everything, but mostly all those names which have surged, and which, far more than gold, will be liquidated first in acts of margin-call satisfying profit taking (very much like the massive Apple block earlier today which pushed the company down by 3%, when it could have easily, but far slower, traded at VWAP with no impact on the price). Once again, all those momentum traders who have been riding this inexplicable wave in stocks higher as the economy crashes, have our sympathies. It is not easy picking pennies in front of rollercoasters, especially knowing full well, that almost all other market players currently (most being HFTs) have an unfair advantage over you.