D.E. Shaw's Humans are Losing Money

A group of traders at the firm D.E. Shaw, one of the most successful quantitative investment funds, has “struggled to make money in 2018,” according to an article in The Wall Street Journal.

According to a spokesman for the firm, its long-short equities group has produced annualized returns of 40% (exclusive of client fees) since January 2013, but the article reports that as of mid-October of this year the group’s losses reached about $100 million.

“D.E. Shaw isn’t the only investment giant wrestling with stock-picking problems this year,” the article adds. Goldman Sachs Group data shows that In October, many stock-picking hedge funds had “their worst day in almost seven years,” losing 7.4% for the month.

According to Larry Newhook, chief executive of asset management firm Alpha Innovations, “The funds getting hit the hardest in October are the ones taking big market risks. They’ve been increasing their net exposures [to the market] and their investors are paying the price.”

D.E. Shaw was created in 1988 by David Shaw, a computer scientist, and is considered a pioneer of the quantitative investment approach, the article says. The firm created its group of human stock pickers in 2004,   making bets in sectors like health care and technology “based on factors ranging from a company’s fundamentals to market sentiment.”

According to the article, D.E. Shaw’s stock pickers are now “wrestling with an aggressive recruiting effort by hedge-fund giant Citadel,” which so far this year has hired away three of the firm’s portfolio managers.