Institutional Investor's Alpha Magazine - March 2009 - (Page 37) Courant Institute of Mathematical Sciences during the summer of 1988 when he got a call from Shaw, who was looking for someone with systems and technical skills to help with his financial start-up. At the time, Shaw was operating out of a small office above Revolution Books, a communist bookstore on East 16th Street, not far from NYU. “I had never really thought about finance, and when David called I was a bit skeptical,” recalls Salkind, who had a reputation as a superhacker for his skill at programming computers that use the Unix operating system. “I came up in shorts and a T-shirt; he had a suit on. He took me out to lunch, described his vision for combining capital with the disruptive capability of technology and two hours later I knew I was going to join this company.” (Salkind says he read 20 to 30 books on finance during his first six months at the firm.) With $28 million in capital from Paloma and a couple of private investors, D.E. Shaw began trading in June 1989. (Shaw and Paloma’s Sussman had met through a mutual friend.) From the beginning Shaw believed that recruiting could give his firm an edge. He required everyone to spend three or four hours a week looking for potential new hires and courting them. Dinning joined D.E. Shaw as a junior researcher in 1990, after completing a Ph.D. in computer science at the Courant Institute. She had met Shaw through Salkind, whose wife shared an office with Dinning at NYU, and like him had not previously given a lot of thought to going into finance. “I came to interview here almost on a lark,” explains Dinning, 46, who grew up in Seattle and now oversees D.E. Shaw’s energy trading, real estate, insurance, fundamental long-short equity strategies and institutional asset management operations. “Everything else I was interviewing for was to be a professor in computer science. I liked what I saw to be the very short-term feedback loop here. You could measure very quantitatively how I could contribute to the firm; the research has dollars and cents associated with it.” When Dinning arrived at D.E. Shaw, the firm had 20 employees and was operating out of a loft on Park Avenue South, a few blocks north of its original office. With its unfinished ceilings, exposed pipes and computer cables snaking around the floors, the offices felt more like a hightech start-up than an investment firm. “Back in those days, if you tripped over one of the cables, you could disable trading for ten minutes until you got the trading system plugged back in,” says Dinning, whose initial project was to develop a quantitative statistical arbitrage forecast for Japanese equities. “We were creating something from scratch. For those of us who were here from the very early days, trying to keep that sort of energy of creating something de novo is what we find appealing.” In 1989, Stu Steckler was a partner in the New York accounting firm of Oppenheim, Appel, Dixon & Co. when he got a call from a friend who had seen a job posting for a CFO with a fledgling hedge fund. Steckler, who was born in Brooklyn and has a degree in accounting from the City University of New York’s Queens College, was newly married at the time. He told his wife about the job but said he was too busy to consider it. She suggested it would be good practice to go for an interview, which turned out to be a three-and-a-half-hour marathon with David Shaw. “I was wiped out at the end,” recalls Steckler, 51, who gave up his duties as CFO last year when he was promoted to chief administrative officer. “David laid out the foundation for how he was thinking of building this company. While it might not necessarily be in my nature to take big career risks, generally, it seemed like I had no logically important phenomena by simulating the dynamical behavior of proteins,” Shaw says. “But you’d have to design such a machine in a completely different way than a regular computer.” That’s what he and his research team have done. Last fall they unveiled Anton, a massively parallel supercomputer that can perform very long, accurate molecular simulations — crunching enormous amounts of data to create virtual movies of molecules at an atomic level of detail. Anton and the research venture are housed on the 32nd and 33rd fl oors of Tower 45, the Manhattan headquarters of the hedge fund firm D.E. Shaw & Co. Shaw named the computer after Anton von Leeuwenhoek, the 17thcentury Dutch scientist and inventor known as the father of microscopy, and has spent in the tens of millions of dollars on the project. “Anton is probably David’s boldest move,” says Klaus Schulten, head of the Theoretical and Computational Biophysics Group at the University of Illinois at Urbana-Champaign, which has developed its own supercomputer for doing molecular simulations. To represent a molecule in motion, Anton must calculate the forces acting on each of its atoms, incorporating potentially hundreds of years of data from chemistry experiments and the laws of physics. Shaw and his group designed Anton’s 512 specialized processors, which were built by Japan’s Fujitsu, as well as the sophisticated software that together generate the simulations. Shaw plans to build 16 more supercomputers, and hopes to make one available for free to universities and other not-for-profi t research labs. The work by D.E. Shaw Research (and by Schulten’s group at the University of Illinois) has the potential to revolutionize drug development. So-called computational microscopes like Anton could enable researchers to design drugs at the molecular level rather than through trial and error. Shaw points to work his group has done on the protein c-Abl kinase, which when it goes awry causes chronic myelogenous leukemia. “We’ve tried to learn more about how the protein moves and changes shape, what causes it to do that and what functional signifi cance those motions might have,” Shaw explains. “If a mutation causes it to get stuck in its active state, the protein can cause a life-threatening form of cancer. Chronic myelogenous leukemia has recently become highly treatable using a drug called Gleevec, which has significantly extended the lives of many patients, but most of them eventually become resistant to the drug’s effects. If you understood the biology really well and could visualize in detail how this drug is binding to the protein and changing its behavior, the hope would be that somebody might ultimately use that knowledge to design new drugs that attack the disease in other ways.” As the chief architect of Anton, Shaw sees his role in part as that of an enabler for other, even greater breakthroughs: “I have no illusions of being a general in the war against cancer, but it feels good to be serving as a soldier.” — M.P. MARCH 2009 • INSTITUTIONAL INVESTOR’S ALPHA • 37
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