Steve Cohen will return to managing money for outside investors as soon as this week with a strategy that’s similar to one he used at his first hedge fund before it collapsed.
At SAC Capital Advisors, which imploded from an insider-trading scandal, Cohen paid employees for their best ideas and leveraged them up in his own portfolio. The government, which banned the trader from the hedge fund industry for two years, said the practice of awarding bonuses for profitable ideas motivated employees to traffic in insider information.
The billionaire will keep cherry-picking the most promising ideas from his managers and analysts when he returns to the big stage, according to people with knowledge of the firm. But at Point72 Asset Management, they don’t receive any extra compensation or capital to manage in return, a firm spokesman said. Cohen is using the practice as he tries to show he still has his mojo after posting an average annual return of 30 percent at SAC.
While Cohen has been restricted from managing outside money at Point72, his Stamford, Connecticut-based family office gained more than 10 percent last year after expenses. That’s a turnaround from 2016, when Point72 was up just 1 percent, Cohen’s second-worst annual performance ever.
Cohen’s Fees
Returns for clients will have to outpace the firm’s higher-than-average fees, including a 2.75 percent management charge and as much as 30 percent of profits for performance. Some expenses will also be passed on to clients.
Industry insiders question if Cohen’s best-ideas practice works without rewarding people for their winning bets.
“I can’t imagine that not paying employees for their best ideas works for very long,” said Brad Balter, head of Boston-based Balter Liquid Alternatives, which invests in hedge funds. “Employees generating outsize profits expect outsize bonuses. You can’t change the rules of the jungle and Cohen knows that better than anyone.”
Executive Turnover
A number of senior executives have left the firm as it prepares to take in outside capital. Since the middle of last year, the departures have included Chris Corrado, chief technology officer, Phil Villhauer, head of global trading, Michael Zea, chief of strategy, Seetharam Gorre, chief information officer, Marc Greenberg, director of research and portfolio manager Qaisar Hasan.
Point72 has hired a number of executives as well, including Sara Vavra, head of global macro, David Loaiza, who leads Aperio, and portfolio managers Jonathan Conway, Tom Hedges and Drew Gillanders.
Back in 2013, it looked like Cohen and his firm might be taken down by an insider-trading investigation that had already spanned seven years. That year, SAC pleaded guilty to securities fraud and agreed to pay a record $1.8 billion fine. Cohen himself was never charged with wrongdoing, but he agreed to return client capital and in 2016 he was banned for two years from managing money for other people. That ban ended on Jan. 1.