D.E. Shaw & Co. LP, known for the $19 billion it manages in exotic alternative investment strategies, is setting its sights on the traditional institutional market.
In 2005, the New York-based firm quietly established D.E. Shaw Investment Management LLC to focus on the institutional market, especially cross-marketing opportunities with clients of its mega-alternatives business. About 30 staff members moved over to the new company this summer, and another 60 to 70 people from the parent company work on quantitative research used by either the traditional or alternative investment teams, said Trey Beck, managing director and head of business development.
The new company offers enhanced indexing strategies that can be "dialed up or down with regard to risk, with anywhere from 100 to 300 basis points tracking error," said Mr. Beck. The firm's flagship strategy, based on the Standard & Poor's 500 or Russell 1000 indexes, is currently available only in a long-only format as a separate account. The firm plans to offer a version that relaxes the short constraint to increase the tracking error without degrading the information ratio. D.E. Shaw started the strategy in July 2000 at the request of the $40 billion Virginia Retirement System, Richmond. The fund eventually pulled its $20 million investment to be managed internally, but D.E. Shaw seeded the strategy with company assets to keep it open.
The firm has one client for the strategy so far, a large foundation that invested $120 million using the Russell 1000 benchmark, said Robert Bartkowiak, senior vice president and director of institutional sales. He declined to identify the client.
D.E. Shaw is also offering institutional investors a portable alpha program, using enhanced indexing as the alpha generator and drawing on its alternatives expertise for the overlay. "As an alternatives manager, we know an awful lot about derivatives and futures," Mr. Beck said.