The Shaw Family Admission Plan
New York magazine|September 30–October 13, 2019
One Wall Street billionaire and the ultimate college hedge.
Ava Kofman and Daniel Golden

The unhappy heroine of The Mistakes Madeline Made, which premiered Off Broadway in 2006, hates working as one of 15 personal assistants to a financier and his family. The patriarch, she observes, “runs his home the way he runs his hedge fund—using a model to protect his family against the possibility of loss or waste or even just the unexpected.” His “Household System” demands perfection: Even the hunt for a duplicate pair of New Balance sneakers is to be executed with the logistical finesse of a Navy SEAL strike.

The play was written by Elizabeth Meriwether, who would go on to create the sitcom New Girl for Fox. Her fictionalized account of her brief stint working for the Wall Street billionaire David E. Shaw never reached a wide audience, but the script became samizdat among the harried members of Shaw staff—as the family’s highly compensated, Ivy-educated, hierarchical cadre is known. Her disgruntled protagonist’s job making sure “nothing bad can ever happen to this family” has felt familiar to some of Meriwether’s successors.

The 68-year-old Shaw made his estimated $7.3 billion fortune by bringing the computing revolution to finance. D.E. Shaw & Co., the legendary hedge fund that bears his name, pairs proprietary trading algorithms with obsessive risk management. Less well-publicized, however, are the various ways in which Shaw has applied his fund’s risk-averse, quantitative approach to nearly every aspect of his life. Employees tell stories about Shaw wanting Chinese food or a comfortable mattress, and Shaw staff exhaustively researching and testing the options in advance. It was company lore that before Shaw traveled, an assistant would take the exact same trip—same car service, same airport, same seat on the plane—to eliminate any inefficiencies. Shaw has been said to purchase tickets for several different flights on the same day in case his plans change.

He has even devised a model to protect his family from the possibility of loss or disappointment (what some might call the stuff of life itself) in that most uncertain of contemporary futures markets—namely, the college-admissions process. Like other couples of ample means, Shaw and his wife, financial journalist Beth Kobliner, have sent their three children to an elite prep school, supported them with hyperqualified nannies and tutors, and encouraged their extracurricular interests. But while the typical snowplow parent quietly eliminates potential obstacles by clearing the road ahead, Shaw and Kobliner have seemingly bulldozed an entire mountain. Even though their children were by all accounts excellent students, the Shaws pursued a remarkably elaborate and expensive pattern of philanthropy to seven of the most renowned universities in the country.

Starting in 2011, when the oldest of their three children was about two years away from applying to college, the Shaw Family Endowment Fund donated $1 million annually to Harvard, Yale, Princeton, and Stanford and at least $500,000 each to Columbia and Brown. The pattern persisted through 2017, the most recent year for which public filings are available, with a bump in giving to Columbia to $1 million a year in 2016 and 2017. The foundation, which lists Kobliner as president and Shaw as treasurer and secretary, has also contributed $200,000 annually to the Massachusetts Institute of Technology since 2013.

The total donations for “general” purposes across seven years and seven elite schools are $37.3 million, which represents 62 percent of the foundation’s giving over that period. At minimum, experts in higher-education fund-raising say, Shaw and Kobliner’s strategy improved their children’s chances of getting into at least one of the country’s top universities. At best, it would allow them to choose whichever blue-chip school they preferred, making selecting a college as easy as ordering from a take-out menu.

Most American tycoons who sweeten their children’s admissions prospects rely on a major donation to a single college, often their alma mater. And yet, from a hedge funder’s perspective, investing in multiple colleges is a classic asymmetric bet—one with minimal risk and massive potential upside. “For someone of his mentality, making a portfolio bet would make a lot of sense,” said one former Ivy League development officer. “I can tell you that within the hedge-fund community and private-equity community, this wouldn’t be unusual. It’s common for people to be giving to two or three or four schools.” (Just how many of these donations are made is hard to know because, while those from foundations like the Shaws’ are typically publicly reported, gifts from individuals are not.)

As Parke Muth, an independent counselor and former associate dean of admissions at the University of Virginia, explained, the very wealthy “are accustomed to diversifying their investments, and they apply that same philosophy to their kids’ choices.”

FOR HIS OWN COLLEGE education, David Shaw, who grew up in Los Angeles, went to the University of California, San Diego, where he studied math, physics, and information science. In 1973, he entered Stanford’s Ph.D. program in computer science. After earning his doctorate, he got a job teaching at Columbia. One former colleague remembers that Shaw arrived in New York driving a Ferrari and had his own public-relations representative, which was unusual for a faculty member. Profiles of Shaw over the years have reported that he left Columbia because Morgan Stanley & Co. made him an offer that was too good to refuse, but that may have been only part of the equation. He was also in his up-or-out year at Columbia, and his promising research project on an experimental supercomputer was perceived to have run into difficulties. “I don’t believe he was going to get tenure,” said Stephen Unger, emeritus professor of computer science. “His clock was running out.” (Through a spokesperson, the Shaw family declined to be interviewed for this story.)

At Morgan Stanley, Shaw realized that computers could do far more than simply help humans gain a financial edge; if programmed correctly, they could replace our faulty intuitions entirely. In 1988, he left Morgan Stanley to found D.E. Shaw & Co., which he conceived of as a research firm that happened to study the intersection of computing and finance. The company’s proprietary algorithms scoured markets across the world for tiny price anomalies. Shaw “pursued numerical precision with a zealous intensity,” Sebastian Mallaby writes in his 2010 book on hedge-fund giants, More Money Than God. “It was no good telling him that a programming task might take three to eight weeks; you had to say that it would take 5.25 but with an error of two weeks.”

The conventional wisdom in the hedge-fund world is to bet big. desco, as Shaw’s firm is known internally, did things differently. Its philosophy, explained one former trader at the firm, is to “bet small and bet many, many times.” Traders are advised never to make a bet that could cripple the firm. “They definitely practice what I would call extreme diversification,” the trader added. “It permeates the culture.”

To fill its storied ranks, D.E. Shaw & Co. depended on the same criteria elite colleges use in their own admissions processes.No matter one’s age or status, every applicant—from secretarial workers to traders lured from top mathematics and physics departments—had to submit their SAT scores. “It was incredibly insulting to recruit professors from MIT and ask them for their SAT scores and high-school GPA,” a recruiter recalls. “They would be like, ‘I’m a tenured professor, why are you asking?’ ” When former Treasury secretary and Harvard president Lawrence Summers applied for a job at the firm in 2006, he was required to solve brainteasers.

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