In celebration of its 50th anniversary, New York Magazine is spending the majority of 2018 covering stories of the city’s pivotal moments. This week it explored a significant shift in Wall Street and the way financial firms operate due to a technological prodigy and the support he garnered from hedge fund mogul Donald Sussman.
David Shaw, aged 37, was a California native with a Ph.D. from Stanford. He moved from teaching to investment banking at Morgan Stanley, but envisioned more. After receiving an offer from Goldman Sachs, he reached out to Paloma Partners founder Donald Sussman for advice.
“I think I can use technology to trade securities,” he said. He didn’t know it, but that thought would change the shape of the industry over the next few years.
Sussman was enthusiastic about Shaw’s ideas, and advised him to reject Goldman’s offer.
“If you’re confident this idea is going to work,” he said, “you should come work for me.”
Shaw and his partner, Peter Laventhol, ended up convincing him of their project’s potential. As a result, Sussman and his firm invested $30 million in D.E. Shaw, which has since developed into a $47 billion firm. By the end of 2016, it had earned its investors over $25 billion.
D.E. Shaw was far from the traditional Wall Street firms, both literally and figuratively. Located in Union Square, the office was understated and plain, filled with an eclectic group of scientists, musicians and other passionate non-Wall Street-ers. Lou Salkind recalls that when he first got the call from Shaw, he thought, “no way.” Having just wrapped up a Ph.D. in computer science at NYU, he was looking for a job but disdained Wall Street. “The year before, I’d been recruited by a few firms on Wall Street. I was skeptical I would like anything in finance,” he said. After a quick lunch, however, he was on board. He had “no idea such mathematical skills would come in handy at a hedge fund.”
Sussman would visit the new office on a weekly basis, and was blown away. “Once they started trading, they started making money out of the box. These were very serious folks. I used to go and sit next to them watching them trade. They didn’t miss a goddamn thing,” he said. “The atmosphere of the place was unlike any other investment firm. It was like going into the research room in the Library of Congress.”
D.E. Shaw has had some other big name employees, including Jeff Bezos, who headed the firms’ online retailing project. Shaw believed online shopping was going to get big, and fast. “I think people will buy things on the internet. They’re going to shop on the internet. What’s more, they’re not just going to shop. Not only will people shop, but when they buy something – let’s say they buy a pipe for watering their garden- they’re going to try a pipe, and they’re going to say, this pipe is good, or this pipe is bad, and they’re going to post reviews, and other people will see them and pick the right instead of the wrong pipe, because somebody else told them, I like this pipe. I don’t like that pipe.”
Shaw told Bezos to run with the idea on his own, and Amazon was born.
30 years later, the firm’s legacy speaks for itself. Sussman, who’s firm now has hundreds of millions of dollars invested in D.E. Shaw, said: “I never doubted him for a minute. I never envisioned that D.E. Shaw would be $47 billion, but I did envision how David would change the world of finance.”