Wall Street

Profit Soaring After Disgrace at Steven Cohen’s Hedge Fund

Matthew Goldstein

Three months after his once-powerful hedge fund entered a guilty plea to insider trading charges, Steven A. Cohen is doing quite well.

This summer, Mr. Cohen and his family rented a yacht off the Greek islands for a vacation. An avid art collector, Mr. Cohen attended Art Basel in Switzerland in June. And last weekend, he and his wife, Alexandra, were guests at a charitable event at the Hamptons home of the comedian Jerry Seinfeld and his wife, Jessica.

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Most of all, Mr. Cohen, 58, is continuing to do what he has done best for more than two decades: make an astounding amount of money from trading stocks and bonds.

His renamed firm, Point72 Asset Management, which manages $9 billion to $10 billion of his personal fortune, is proving to be nearly as profitable as his former hedge fund.

Steve Cohen
Simon Dawson | Bloomberg | Getty Images

Over the first six months of this year, the firm generated a profit of nearly $1 billion, said two people briefed on the matter. In 2013, SAC Capital Advisors' last year as a hedge fund, Mr. Cohen personally made about $2.3 billion.

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The profits generated to date at Point72 are nearly equal to the $1.2 billion penalty that SAC paid to the federal government as part of its guilty plea. Mr. Cohen's new firm, which is prohibited from managing money for outside investors, is making money even as more than a dozen top portfolio managers or traders have left for jobs with other hedge funds.

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Despite those departures, the stain on his reputation and a still unresolved civil action against him, little has changed for Mr. Cohen.

His new firm employs nearly 850 people, just 150 fewer than SAC did last summer when the then-$14 billion hedge fund was indicted and Preet Bharara, the United States attorney in Manhattan, called the fund a "magnet for market cheaters." Only one Wall Street firm — Deutsche Bank — has chosen to stop lending money and serving as a prime broker to Point72 after SAC's guilty plea.

Mr. Cohen's firm even plans to continue an annual Thanksgiving tradition begun by SAC — it will again sponsor a giant balloon inflation celebration and parade in downtown Stamford, Conn., on Nov. 22.

There is a new sign outside the firm's 98,900-square-foot headquarters at 72 Cummings Point Road in Stamford and employees now don fleece vests emblazoned with the Point72 logo as opposed to the old SAC one. But those changes are largely cosmetic.

Federal authorities insist that SAC's guilty plea, combined with the insider trading convictions of more than 80 people, including eight who used to work for Mr. Cohen, serves as a powerful deterrent. But some say that message may travel only so far.

"The SAC affair put more fear into midlevel people than into billionaires," said Erik M. Gordon, a professor at the Stephen M. Ross School of Business at the University of Michigan. "If you are as rich as Cohen, you can survive huge fines and attorney fees and even an industry ban that leaves you managing your own billions. The only thing you fear is jail time."

Jonathan Gasthalter, a spokesman for Mr. Cohen, declined to comment. The firm this year has taken a number of steps to stiffen its compliance procedures and surveillance of traders to ensure that no more improper trading takes place.

It remains to be seen if Point72 will be able to continue its early success, especially if top traders continue to leave and the firm makes no new star hires to replace them.

The two most recent prominent departures are the portfolio managers Shoney Katz and Peter Avellone, who are joining a trading platform at Citadel, the large investment firm led by Kenneth C. Griffin, another billionaire investor. Mr. Katz and Mr. Avellone left Point72 within the last few weeks, said the people briefed on the matter who spoke on condition of anonymity.

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Gabriel Plotkin, one of Mr. Cohen's most successful traders, recently wound down his onetime $1 billion stock portfolio to focus exclusively on raising money for his own hedge fund, which will start next year with up to $200 million in financial backing from Mr. Cohen. Mr. Plotkin seeks to raise up to $1 billion from other investors and intends to staff his new fund with the analysts and junior traders who have worked with him at Mr. Cohen's firm, these same people said.

Point72 has managed to hire just two established traders from the outside so far this year: Scott Braunstein, who came from JPMorgan Chase's asset management division, and Howard Man from Bank of America Merrill Lynch. For Mr. Man, who will be based in the Point72 office in Hong Kong, this is his second go-round working for Mr. Cohen.

Most of the hires at Point72 have been research analysts, many of them relatively junior employees. The firm has brought on about 30 new analysts this year, said a person briefed on the matter. This person, who spoke on condition of anonymity, said Mr. Cohen was looking to hire analysts over more experienced traders because he now preferred to groom his own trading force.

In effect, Mr. Cohen, a minority owner in the New York Mets baseball team, is looking to create his own internal farm team to develop the firm's traders of tomorrow.

But that strategy has risks, because it takes time for an analyst to mature into a trader knowledgeable enough to take the appropriate risk to make money. Hedge fund industry recruiters who did not want to be identified because they sometimes worked with Point72 said the firm's push to hire analysts also reflected the fact that top traders were still reluctant to join the firm so soon after SAC's guilty plea.

The billion-dollar profit that Point72 has made so far this year is a large one, but the firm is a very different creature now, and comparisons with hedge funds are inexact. Because it is what is known as a family office, the firm does not have outside investors to share profits and pay fees.

Through the end of June, Point72 was up a little over 9 percent, but that is a gross figure, said two people briefed on the matter. Hedge funds are normally judged based on their performance after paying fees and expenses. If Point72 were still operating as a hedge fund, its reported performance to outside investors would be closer to 4 to 5 percent.

A 4 percent gain would be enough to beat the average 3.2 percent return posted by all hedge funds as measured by the Hedge Fund Research indexes. A year ago, SAC ended June up 8.25 percent after paying fees and expenses. For the full year, the fund posted a 20 percent return.

By that standard, the current 9 percent gross return is good, but it is a far cry from the 25 percent average annual return SAC recorded during its 22-year history.

By Matthew Goldstein, New York Times