Quant Hedge Fund D.E. Shaw Fires 150; 10% of staff

http://dealbook.blogs.nytimes.com/2010/09/28/d-e-shaw-said-to-cut-10-percent-of-staff/

by dbfclark • 16 years ago

59 46 16 years ago

dealbook.blogs.nytimes.com

DevX101• 16 years ago

How much staff is really really needed for these quant shops? After an algorithm is developed isn't it just rinse/repeat? Honest question, as I'm not a finance guy.

bhiggins• 16 years ago

It is a perpetual arms race.

msort3• 16 years ago

Just like a technical firm needs to iterate on the products and infrastructures. A trading firm needs to iterate on the algorithms and infrastructures to stay competitive.

Market changes constantly. Many trading algorithms are essentially market-data driven and need to adapt to the market or lose.

rxin• 16 years ago

The effective lifetime of a trading algorithm is only weeks. They need to keep iterating to remain competitive.

known• 16 years ago

True. It is called GUAS (Grand Unified Arbitrage System) in DESCO. A highly configurable system where quants constantly try new algorithms.

msort3• 16 years ago

This is sad. Founded by a computer scientist, DE Shaw is perhaps the most tech-focused among hedge funds.

I once had a very challenging technical job interview there. Several interviewers had PhD in Computer Science.

smanek3• 16 years ago

Yeah. At my interview, I had the guy who wrote the O'Reilly OpenSSH book asking me to derive Fermat's little theorem. Fun times ...

IIRC, even the HR person I spoke to had a PhD (russian literature, I think).

They are a very impressive firm, and I hope they recover from their recent misfortunes.

yurylifshits• 16 years ago

As pg mentioned above it is better to channel this talent to startup world :)

kujawa• 16 years ago

I avoided going to a tech interview there, because I knew they'd never have me no matter how sharp my Unix chops are.

No degree.

But I was laughing a couple months later when I was working across the hall at Akamai ...

joshu2• 16 years ago

i'm not convinced they're smarter than anyone else. i'd rather invest in renaissance or citadel...

my coworkers at morgan were all physics or cs phds. and a consulting expert got a nobel prize while i was there. amusingly, i interviewed at google around the same time, and some of the engineers were condescending about the quality and education of my coworkers.

gms• 16 years ago

Why condescending? What is there to be condescending about when it comes to physics/CS PhD's?

Juliuso• 16 years ago

Renaissance over Citadel. If I'm not mistaken, Renaissance is purely automated trading. No traders or trading floor in the conventional sense. Plus they weathered the fallout of 08 much better than Citadel.

What's sad is that these smart people, including ones I've met while working as a SysAdmin for a Prop Trading firm often don't have access to the capital to start their own shops. This is due to the incestuous nature of the Finance world, where it's a lot more about who you know than what you know.

Sadly, they're often in the employ of third-rate CEOs, who always get a cut off the top, and pay the producers a mere fraction of what they made for the firm and their clients.

smanek3• 16 years ago

granted rentech probably has desco beat (at least in terms of recruiting toughness - the only metric I'm really in a position to judge by). But I don't think anyone would deny that desco is part of that top tier too.

FWIW, in my experience the handful of citadel programmers I've interacted with aren't quite in the same league as shaw/rentech/getco/jane st/etc. I have no idea how that reflects on their returns though ;-)

borism2• 16 years ago

Peter J. Weinberger (W in AWK) worked at RenTec before moving to Google.

I would not invest in anything from them however. Medallion has been closed for new money for many years now and all other offerings performed poorly to say it politely.

willdav3• 16 years ago

I agree with you. they don't have smarter people than any of these big names morgan, goldman.

They show off to attract similar candidates because they know they are nowhere compared to these biggies.

If I have a offer from Goldman why the fuck I join de shaw or xyz company.

geezer• 16 years ago

They refused to interview me because my SAT scores from 12 years ago was too low for them. I had 1330.

zackattack• 16 years ago

I had a 1540 and they didn't interview me.

pg• 16 years ago

http://ycombinator.com/apply.html

olegkikin• 16 years ago

Is 10% really that bad?

If it's the bottom 10%, it should actually improve company's performance.

aberman• 16 years ago

Unless of course you follow that argument to its logical conclusion...

nostrademons3• 16 years ago

That's exactly what companies like GE and Intel do.

I personally think it's terrible management practice, but it seems to work for them, and there's always fresh young blood coming in at the bottom.

loewenskind• 16 years ago

Assuming you can actually figure out who the bottom 10% are. Also assuming that the bottom 10% is a constant and not something that literally changes daily.

m0nastic2• 16 years ago

Everywhere I've ever worked, people's performance isn't that wishy-washy. There has always been a "normalization" of performance that becomes apparent based on people's fit within the organization and abilities.

Now, I agree that quantifying that is non-trivial. I've always been interested in places where they actually do that (and wonder how accurate it is), but I wouldn't be surprised to find that people who find themselves in that lowest 10% don't find themselves there on a whim.

willdav3• 16 years ago

then they can cut rest 90% also, it will further improve their performance

gord2• 16 years ago

I assume their business model is roughly : to implement algorithms that find near-arbitrage opportunities by sifting through vast amounts of market data, then use those to multiply investment funds. This sounds like the perfect domain for a startup.. where a nimble small team of quant/developers would have huge advantages, by being faster to rollout.

This is almost a pure software business, so why aren't these companies more like startups? Is it because of the expense of getting fine grained and low latency market data [eg. exchange colocation]? Or is it due to the contacts needed in the biz to get the 'investment' funds to trade with? Or is it because only large financial entities have access to these risky speculative trades?

Side note : I see Jane Street Capital use Ocaml, and some other quants use KDB/Q for implementing these kinds of algorithms, so it seems innovative languages give leverage here. I was thinking Node.js + a js BTree api to access streaming data would be a nice dev environment.

gaius4• 16 years ago

why aren't these companies more like startups?

There are. http://www.forbes.com/2010/07/28/high-frequency-trading-pers...

Incidentally Jane Street isn't a hedge fund, it's a proprietary trading firm.

gord2• 16 years ago

Nice link.. seems like HTG have taken the first step towards a pluggable infrastructure, where the plugin is the quant/programmer + their algorithm implementation.

ps. I never really understood the difference - Hedge Funds seem to be more about speculating via leverage than 'hedging'? [using their own proprietary algorithms to do that]

msort3• 16 years ago

Two major difference of a trading firm from a software firm: 1) Large amount of trading capital is needed to make a sizable profit. 2) Math, finance and trading skills.

A trading firm needs above 2 items in addition to technical skills to succeed. A team of good people with all 3 above items (capital, trading, tech) have a good chance to succeed.

In fact, Citadel (one of the largest quant hedge funds) was started by one person (Ken Griffin) when he was a undergraduate from a Harvard dormitory. It is pretty much a startup success story.

There is a major culture difference: trading is the key activity; coding is only secondary. This may explain why trading firms usually have a typical wall-street tough culture, and don't feel like a typical silicon-valley startup.

gaius4• 16 years ago

Not so different as you might think. After all, a large amount of capital is needed to build out a datacentre. Doesn't mean that Google is the only company that can make a profit on the Internet.

daylast• 16 years ago

One thing I always found odd about DE Shaw is how casual the work environment is. It's like google, but in Manhattan. The problem is NY isn't california and quant finance isn't all software. There's a certain pace and overt competitiveness to Manhattan that enforces a discipline and a work ethic onto people. This works quite well in the Darwinian world of finance. But, from what I saw of various parts of DE Shaw's operations there was somewhat a lack of urgency to some fairly critical areas. A good firing spree every once in a while seems to work wonders in putting the urgency back into the workforce.

beagle3• 16 years ago

Google has an office in Manhattan, 15th street and 8th avenue if I'm notmistaken. I haven't personally been to any other google office, but it doesn't look different than the pictures of any of them; All the perks, sleeping pods and cafeteria stuff seems to be there.

Quant Hedge Fund D.E. Shaw Fires 150; 10% of staff

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