From the second page of that article:
[D. E. Shaw] is nothing like a button-down Wall Street brokerage firm. Jeans, sweatshirts and sandals are common. The firm has not one, but two libraries, where textbooks on computer coding are stacked near academic finance journals dating to the 1960s. For a time, the décor included light bulbs strung from the ceiling on
various lengths of wire, each determined by a computerized random-number generator.
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Financial disclosure form, released by the White House:
Lawrence E. Summers, director, National Economic Council
Related
Financial Industry Paid Millions to Obama Aide (April 4, 2009)
Times Topics: Lawrence H. Summers
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It is a quicksilver business and wildly lucrative. Mr. Shaw is said to be worth $2.7 billion, and today his firm manages $30 billion.
At Shaw, Mr. Summers, the professor, was often the student. The arrogant personal style that turned off some Harvard colleagues seemed to evaporate, Shaw traders say. Mr. Summers immersed himself in dynamic hedging, Libor rates and other financial arcana. He seemed to fit in among Shaw’s math-loving “quants,” as devotees of math-heavy quantitative investing are known. Traders joked that Mr. Summers was the first quant Treasury secretary because he had once ordered dollar bills to
be printed with the transcendental number pi — 3.14159... — as the serial number.
“We could call or e-mail him anytime,” a former Shaw trader said. “He always asked me more questions than I could ask him. He would dig through my entire way of thinking.”At Harvard and at Shaw, Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House. Among these insiders are Kenneth D. Brody and Frank P. Brosens, the foundingpart-ners of another hedge fund, Taconic Capital Advisors, for whom Mr. Summers did consulting work from 2004 to 2006.
Mr. Summers reached out to Mr. Brosens in December to discuss the Obama administration’s economic priorities. This year, he campaigned to have him run
the federal office overseeing the $700 billion bailout program. Mr. Brosens withdrew his name from consideration last month. Others in this inner circle include Nancy Zimmerman, a longtime friend and hedge fund manager in Boston; Laurence
D. Fink, the chairman and chief executive of BlackRock, a large money management company that hopes to play a potentially lucrative role in the administration’s bank rescue plan; H. Rodgin Cohen, the chairman of the law firm Sullivan & Cromwell, who was briefly considered for a senior Treasury post; and three other top fund managers, Orin S. Kramer, Ralph L. Schlosstein and Eric M. Mindich.
Friends of Mr. Summers say he has always been meticulous about avoiding conflicts of interest and that he was just as careful at D. E. Shaw. For instance, Mr. Summers went to lengths to pay the Social Security taxes on payments he made to even occasional babysitters from the 1980s, said Jeremy Bulow, an economics professor at Stanford, who has known Mr. Summers since graduate school.“To Larry, it was not about figuring out where the line is and making sure you’re on one side of it,” Mr. Bulow said. “He would never even get close to it.”
In addition to his salary at Shaw, Mr. Summers enjoyed growing wealth through investments in the firm’s funds. Unlike most hedge funds, which lost money as the markets plunged in 2008, Shaw posted returns of about 7 percent in its so-called macroeconomic fund. A separate multistrategy fund lost 8 percent, far less than most hedge funds.
When investors rushed en masse to withdraw their money from hedge funds last year, Shaw asserted its right to block redemptions from its fund. An exception was
made for Mr. Summers, however, because the White House job he was taking required him to divest. A spokesman for Shaw said Mr. Summers’s main job was
not to act as a salesman. But in the fall of 2007, as the financial crisis simmered, Mr. Summers traveled to Dubai for a series of meetings with Shaw’s marketing staff and potential investors. Bankers from across the region flew in for the event. Mr. Summers spoke at several lavish dinners and met with local parties involved in Shaw’s real estate investments in the area, people briefed on his trip said. Last September, Mr. Summers explained to Shaw traders what appeared to be an aberration in a key interest rate, the London interbank offered rate, or Libor, thus helping its traders avoid losses. He spoke at the firm’s 20th anniversary gathering for its investors and at a prominent hedge fund investor conference in Boston, weeks before the presidential election. In December, he attended the firm’s annual holiday party, held in the American Museum of Natural History in New York, beneath the giant model of a blue whale. Even so, Mr. Summers, who, before the crisis broke out, spoke and wrote about the need for greater financial regulation, has not resisted the efforts to tighten up on hedge funds like Shaw. The administration, for instance, is moving toward closing a tax loophole that these funds have long enjoyed. A White House spokeswoman says his actions supporting hedge fund regulation prove he is not biased.
Some people in the financial world say they have more confidence in the White House’s plans because of Mr. Summers’ time at D. E. Shaw. “He had insights into one of the best hedge funds in the world. That can only add value to the things the government is struggling with right now,” said Robert Borden, chief investment officer of South Carolina’s pension fund, which has invested $350 million with Shaw. Mr. Borden met Mr. Summers to discuss how much money a large institution should allocate to hedge funds. “It was a nice perk to have access to some of his thoughts and insights,“ Mr. Borden said.Mr. Summers’s experience in hedge funds might leave some wondering if he will return to private investing when his latest White House assignment ends, perhaps even to run his own lucrative fund. Asked about that, Mr. Shaw laughed. “Oh, boy, I have no idea,” he said. “Thankfully he’s doing what he’s doing. I’m really glad he’s running this. It’s a scary time, and I can’t think of anybody I’d rather see there.”
As readers of this Blog know, I admire and value Larry Summers. But this article goes deeper into his connection with the Shaw Hedge Fund. Does it trouble me? Not really. Larry has his heart in the right place I believe.
What does trouble me is that articles like this make me realize that there are Masters of the Universe out there with black boxes that "see" things that I never could. Moreover they see things that investment advisers cannot see either. Who can compete with them?
And to invest with them requires more money than I have.
But this is off the point as posed implicitly by the New York Times.
