D.E. Shaw

1988–1996: Founding and early years

The company was founded by David E. Shaw, a former Columbia University computer science professor with a PhD from Stanford University. D. E. Shaw began investing in June 1989, having secured $28 million in capital from Donald Sussman's Paloma Partners and several private investors. The company carefully protected its proprietary trading algorithms. Many of its early employees were scientists, mathematicians, and computer programmers.

In 1994, the company's net return was 26 percent. It managed several hundred million dollars in "market-neutral strategies, including statistical arbitrage, Japanese warrant arbitrage, convertible-bond arbitrage and fixed-income trading." Its non-hedge fund activities in the mid-90s included setting up a broker-dealer subsidiary, founding the email provider Juno Online Services, launching an online banking and brokerage firm, and opening an office in India focused on developing software and systems to support the company's trading operations and online businesses.

1997: Strategic alliance with Bank of America

In 1997, the firm returned capital to most of its early investors in favor of a structured credit facility of nearly $2 billion from Bank of America, with terms that allowed D. E. Shaw & Co. to keep a higher fraction of profits than hedge fund investors normally allow. In effect, Bank of America provided an infusion of $1.4 billion to D. E. Shaw, hoping to benefit from the latter's investment expertise. The 1998 Russian financial crisis resulted in large losses for D. E. Shaw's fixed-income portfolio. As a result, Bank of America lost $570 million due to its investment in D. E. Shaw, and paid out an additional $490 million to settle associated shareholder lawsuits.

Following the collapse of this alliance, D. E. Shaw laid off employees, reducing its workforce from 540 employees in 1999 to 180. The company's capital shrank from $1.7 billion to $460 million.

2002: Management transfer

David E. Shaw directed the company from 1988 to 2001. In 2002, he removed himself from day-to-day involvement in order to focus on D. E. Shaw Research and transitioned leadership of day-to-day activities to a team of six of the firm's senior managing directors. The same six-member Executive Committee of Anne Dinning, Julius Gaudio, Louis Salkind, Stuart Steckler, Max Stone, and Eric Wepsic remained intact until 2012 when Steckler retired.

2008 financial crisis

In August 2007, D. E. Shaw's multi-strategy fund had assets of $20 billion. A third of the fund's exposure was to the equity markets and equity-linked quantitative strategies. As a result, the fund lost five percent of its assets and had its worst-performing month to that point in time. By September 2008, the company's capital was four times leveraged. In the final months of 2008, gains on its then $15 billion multi-strategy funds were lost.

Twenty percent of the company's assets under management were in its credit strategies and were the hardest hit during the 2008 financial crisis.

To avoid further loss of portfolio value and asset fire sales, D. E. Shaw temporarily halted withdrawal of funds. By 2009, D. E. Shaw had returned about $2 billion at clients' requests. One year later, the Financial Times reported that investors estimated the company had honored an additional $7 billion in client redemption requests.