Jane Street’s growing pains
Jane Street, the Wall Street quant trader, has had some fantastically successful years, generating billions of dollars of trading revenue. But last year set a new high as revenue nearly doubled to $40bn from 2024, itself a two-bagger on 2023. This year the situation looks a tad different.
Jane Street had invested heavily in Situational Awareness; a former employee at Jane Street works at the AI-focused fund; and it was exposed to many of the same AI-linked stocks that Leopold Aschenbrenner, the founder of Situational, had bought, including Sandisk, Nebius and Bloom Energy, write Jill R Shah and Joshua Franklin.
But the bets soured, leading Jane Street to lose money over a month for the first time in a decade. The stake in Aschenbrenner’s fund and positions in AI stocks were the main factors behind a massive $15bn loss in trading revenues, after a bruising sell-off in the sector during July.
The loss was a stunning reversal for a firm whose returns had become the envy of Wall Street. It also made clear just how far the secretive company has evolved from its roots as a nimble market maker and arbitrage trader, profiting from tiny differentials in asset prices over fractions of a second.
Today, it is one of the largest financial institutions in the US and it takes massive bets over longer horizons, increasing the risk to its balance sheet, lenders and regulators, who keep a close eye on outfits the size of Jane Street for the market dislocations they could cause.
The FT spoke to more than a dozen current and former employees, as well as analysts and other Wall Street firms familiar with Jane Street’s evolution. Jane Street itself declined to comment.
“When you start seeing the kind of revenue these guys are putting up, the only way that’s possible is when your holding period extends as well as the size,” says Larry Tabb, head of market structure research at Bloomberg Intelligence. “The problem with that is your clarity on the future declines.”
Its tilt into large and lengthy wagers and its headlong embrace of the AI trade, including the Aschenbrenner investment, comes as the firm has achieved fearsome scale, according to Paul Rowady, director of research for Alphacution.
“You’re trading slower. You have bigger positions, they absorb more capital,” he adds. “It’s a different animal.”