NEW YORK – D.E. Shaw & Co., a hedge-fund firm backing Deepwater Wind’s offshore wind farm project in Rhode Island, has fired about 150 employees, two people familiar with the cuts said on Tuesday to Bloomberg News.
The dismissals represent about 10 percent of the work force, according to the people, who asked not to be identified because the information hasn’t been made public.
Assets at the firm, started by David Shaw 22 years ago, have fallen 46 percent to $21 billion from the 2008 peak, primarily through client redemptions.
The firm lost investors after limiting withdrawals in 2008.
Investors have fled fund managers including D.E. Shaw and N.Y.-based Harbinger Capital Partners LLC that prevented them from pulling out money during the financial crisis of 2008. Firms usually limit withdrawals because they have hard-to-sell assets that they don’t want to unload at fire-sale prices.
“Investors have long memories,” said Brad Alford, who runs Alpha Capital Management LLC in Atlanta, which selects hedge funds for clients. “D.E. Shaw was one of the poster children for treating investors poorly in 2008.”
D.E. Shaw restricted redemptions in November 2008 from its Composite and Oculus funds, even though the Composite fund had dropped 11 percent, about half the industry average, and the Oculus fund was up about 10 percent.
The firm told clients it had enough cash to meet withdrawals. Even so, fund executives said they wouldn’t allow investors to pull their money because the funds’ documents stipulated that if redemptions reached a certain percentage of assets, the firm could halt them.
Limited offer
D.E. Shaw in June 2009 allowed investors the one-time option of pulling 16 percent of their assets from the two funds. Those who accepted weren’t allowed to make additional withdrawals in 2009.
“The D.E. Shaw group has taken steps to strengthen our business and maximize value for our investors over the long term,” said Paul Welsh, a spokesman for the firm. He declined to elaborate. Institutional Investor magazine reported the job cuts on its website yesterday.
The Composite Fund, which uses computer models to make buy and sell decisions, dropped 3 percent this year through August, compared with the 6.4 percent gain by the Relative Value Index compiled by Chicago-based Hedge Fund Research Inc. The fund, D.E. Shaw’s largest, climbed 20 percent in 2009, less than the index’s 26 percent return.
‘Isolated case’
“I think this is an isolated case and not reflective of trends in the hedge-fund industry at the moment,” said Ross Baltic, a managing partner at Mercury Partners Inc., a N.Y.-based recruiting firm whose clients include hedge funds. “There’s a healthy level of sustainable hiring activity.”
Hedge funds returned 1.45 percent on average this year through August, according to Hedge Fund Research, compared with a decline of 4.6 percent by the Standard & Poor’s 500 Index. The $1.6 trillion industry pulled in a net $23 billion in the first half. At that rate, 2010 would be the third-worst year for deposits since 2001.
Shaw, a former Columbia University computer science professor, founded D.E. Shaw in 1988. He ceded oversight of his firm to a six-person committee in 2002, when client assets were about $2 billion.
