There’s a low-slung glass and brick building in Stamford, Conn., steps from Long Island Sound, that once housed one of the most successful hedge funds ever. Inside, the halls are still adorned with works by Jeff Koons and Jasper Johns. The trading room—where phones blink instead of ring—is still kept at 69F to keep traders awake. And Steve Cohen still sits in the middle of it, watching the tape and making his bets.
In February the billionaire trader will begin to rebuild his firm, taking in client capital after a two-year ban from managing money for other people. It’s not a banner day for regulators, given that the government spent the better part of a decade going after Cohen. One prosecutor called his former firm, SAC Capital Advisors, a “criminal enterprise” that produced some of its returns by trading on inside information. Those returns? A stellar 30 percent a year on average from 1992 to 2013.
Six former employees were convicted or pleaded guilty to trafficking in material, nonpublic information. One other had charges dropped, and another’s guilty plea was dismissed. While Cohen, 61, was never charged with wrongdoing, his firm pleaded guilty to insider trading, paid a $1.8 billion fine, and returned client capital in 2014. The ban on managing other people’s money ended in January. In the meantime, Cohen remained a player by running Point72 Asset Management LP, a so-called family office that oversaw $11 billion, which was the bulk of his own fortune.
Now, Point72 gets to be a hedge fund open to outsiders—that is, to investors with enough money to qualify and who’re willing to pay a management fee of 2.75 percent, plus some expenses, along with a share of the profits of as much as 30 percent. Yet Cohen’s operation no longer exudes the swagger it once had. It may be hobbled by all the changes it made to appease the government and show itself to be squeaky-clean. The senior executives who ran SAC are all gone, as are many of the most successful portfolio managers.
Some investors who use hedge funds, who asked not to be named, have expressed doubt about whether Cohen will able to replicate his earlier success. The fees he’s charging are far above the industry average at a time when more investors are balking at paying up for hedge funds. While his marketers speculated in May they’d be able to raise $10 billion for the relaunch, the figure is closer to $3 billion, say potential clients who spoke to Bloomberg News for an earlier story.
Indeed, Bloomberg reporting has found an environment at Point72 that would be barely recognizable to the scrappy firm Cohen founded in 1992. A former McKinsey consultant, Doug Haynes, is president of the 1,150-employee firm. The 52-year-old, who sports cuff links with the Point72 logo, said Cohen hired him to “reset” the business, according to a 2016 interview he gave to recruiting website OneWire. He hired a 50-person compliance team that sits in the center of the trading floor with Cohen. They monitor emails and phone conversations and have veto power over hires, according to a person who’s seen the command center. To appeal to millennials, Point72 offers amenities such as a nap area. The firm has spent the past few years recruiting heavily from universities, meaning the investment team skews young. Many of them have never seen a bear market.
Cohen’s returns since 2014 haven’t lived up to his previous record—or beaten the bull market. The firm made about 1 percent in 2016. Last year it gained more than 10 percent after expenses, compared with almost 22 percent for the S&P 500. That was achieved with a lot of leverage to help goose returns—more than double the amount used at SAC, according to a regulatory filing.
When Cohen started SAC, he took a band of traders with him from Gruntal & Co. He yelled at them to take risk and added to their own trades when they were too timid to do so themselves, according to people there in the early days. Yet the employees were his friends. They attended basketball games together and even went on joint vacations to the Caribbean. A colleague might come home to find Cohen lying on his couch watching golf on TV.
Cohen pitted employees against one another. They saw their colleagues’ returns in real time. Multiple teams covered industries such as health care, technology, and financials, competing to find the most profitable wagers. One team might bet on a stock going up while another bet it would fall. What one SAC trader described as “shark tanks within a shark tank” has given way to a firm where a group of former consultants (the strategy team) plans for the future. They dream up names like Point of the Spear, for a group whose job is to translate big data research into stockpicking themes.
Some former employees have complained that as Cohen prepared to take client money, Point72 grew top-heavy with executives. They imposed rules on traders that restricted their ability to make money by requiring them to be more hedged or not allowing them to make bets as concentrated as they once did. Nor are managers paid for ideas they funnel to their boss, who picks the best of them for what is known as the Cohen Account, according to the firm. “You will never keep the best idea generators if they are not compensated,” says Brad Balter, head of Balter Liquid Alternatives, which invests in hedge funds.
In the old days, a winning trade pitched to Cohen could earn an employee millions in extra pay. That encouraged cheating, prosecutors said. Noah Freeman, a former SAC portfolio manager who pleaded guilty to securities fraud in 2011, told the FBI it was understood that those giving their best ideas to Cohen would provide him with inside information. SAC said Freeman’s testimony showed he hid his activities from the company and SAC didn’t condone them.
As Cohen hits reset, the feds have likely moved on, says James Cox, a professor of securities and corporate law at Duke University. “I don’t see the government sitting like a vulture waiting for a misstep by Cohen—that would not be the best use of resources,” he says. But Cohen doesn’t just have to stay out of trouble. To investors looking for performance, he also has a lot to prove.