D E Shaw

#Hedgefunds: Is the Capacity of Alpha Unlimited?

#Hedgefunds: Is the Capacity of Alpha Unlimited?

Like the financial markets equivalent of "dude", or "bro" or the many satisfying derivations of "F**K," the term "alpha" seems to pepper our market discourse in a way that has few peers. Rightly or wrongly, there isn't an investment or trading context into which it is not shoehorned. We hear it everywhere, at all times, and in numerous forms: Achieving alpha... Delivering alpha... Portable alpha... (A strategy that had its heyday around 2006 and has recently tried to make a comeback.) Tainted alpha... (Not gonna go there right now.) And, my personal favorite (for its level of misguidedness), generating alpha... There are conferences named after it, like the CNBC and Institutional Investor ANNUAL Delivering Alpha Conference, now apparently in its 8th year. And, of course, some of the most brilliant and creative companies of all time have been named after it! - and, I'm not necessarily talking about firms like Visible Alpha or AlphaSense or the defunct quant strategy development platform, Alphacet... To be fair, the list of common usages [...]

By Paul Rowady|2020-10-05T21:22:58-04:00September 23rd, 2018|Open|

α < ∞ ?

α < ∞ ?

Like the financial markets equivalent of "dude", or "bro" or the many satisfying derivations of "F**K," the term "alpha" seems to pepper our market discourse in a way that has few peers. Rightly or wrongly, there isn't an investment or trading context into which it is not shoehorned. We hear it everywhere, at all times, and in numerous forms: Achieving alpha... Delivering alpha... Portable alpha... (A strategy that had its heyday around 2006 and has recently tried to make a comeback.) Tainted alpha... (Not gonna go there right now.) And, my personal favorite (for its level of misguidedness), generating alpha... There are conferences named after it, like the CNBC and Institutional Investor ANNUAL Delivering Alpha Conference, now apparently in its 8th year. And, of course, some of the most brilliant and creative companies of all time have been named after it! - and, I'm not necessarily talking about firms like Visible Alpha or AlphaSense or the defunct quant strategy development platform, Alphacet... To be fair, the list of common usages [...]

By Paul Rowady|2020-08-17T07:14:07-04:00September 20th, 2018|For Subscribers|

Virtu Financial: More Acquisitions on the Way, If…

Virtu Financial: More Acquisitions on the Way, If…

When we launched our first trading program at Quantlab in the late 90's, we didn't have direct market access yet. We generated an order list (overnight) that was worked throughout the subsequent market session at the discretion of an algo-equipped executing broker; some of whom now roam the halls at Jefferies / Leucadia. This was the era when 1- to 3-day portfolio turnover was considered fast - SOES bandits were still a thing - and Schwab would soon acquire electronic trading pioneer, CyBerCorp, from Philip Berber - a short drive down the road from our Houston headquarters in Austin, TX. Of course, everyone had nicknames then - as I suspect they still do now. Ed Bosarge, founder of what eventually became Quantlab (after at least 3 prior related incarnations that began for me around 1996), was known as Dr. Evil. Let's just say it's a hair-raising story about a swashbuckling pioneer of applied math involving a hideous toupee... I was known as Mr. Bigglesworth - or, "Bigsy" for short. No [...]

By Paul Rowady|2020-10-05T21:19:11-04:00March 27th, 2018|Open|

Top Hedge Funds: AUM per Employee = Trading Strategy?

Top Hedge Funds: AUM per Employee = Trading Strategy?

We have been playing with some new equations; looking to see if anything interesting can be learned from benchmarking assets per employee across various firms. (It turns out that adding this analytic to our suite of other "per employee" metrics yields significant insights.) In the figure below, we took the top 10 hedge funds ranked by assets under management (AUM) and then re-ranked that list by AUM per employee. We also tossed in Virtu Financial and KCG (Getco) for giggles - and to test the extremes. Notice anything interesting? Based on what you might know about these trading companies, how would you label the X-axis? Here's some additional data to consider: The correlation between assets and headcount is not perfect by any stretch, but it is signal-worthy. Also, this trick works best on mature, ongoing firms whose operations and business are relatively consistent. Headcount level doesn't seem to matter. Albeit at the extremes of tradings firms, Virtu Financial generated nearly US$800 million in revenue (2015) with 148 employees - so [...]