Steve Cohen's new family office is taking a largely unprecedented step to push employees to be highly ethical and civic-minded: a cash bonus.
The sullied billionaire investor continued his rebranding campaign in October after the hedge fund firm he founded, SAC Capital Advisors, pleaded guilty to criminal insider trading charges and agreed to $1.8 billion fine and to stop managing external capital. Cohen has hired new senior leaders for Point72 Asset Management, including a former federal prosecutor as "chief surveillance officer" and a former McKinsey & Co. director as president.
The recently announced "Rewarding What Matters" bonus system is for stock investment teams based in the U.S., the family office's main strategy.
According to Point72 spokesman Mark Herr, the up-to-4 percent bonus is tied to a combination of criteria including "sustainable and repeatable" investment returns and "significant contributions" to the firm and community outside of financial performance. Internally, that includes "adhering to the highest ethical standards" and helping train analysts. Externally, it can be nonprofit work, such as running a charitable foundation.
The plan—masterminded by Cohen and President Doug Haynes, and formed during about 10 workshops for senior leaders in recent months—calls for portfolio managers to lead by example.
"We're not paying you to be ethical. You get to keep your job by being ethical and performing," Herr said in an interview. "What we're paying you a bonus for is going above and beyond what would be ordinary conduct."
More of Point72's portfolio managers are trained internally, which the family office hopes will make its policies more effective. In 2008, 80 percent of them came from outside the firm, according to Herr; more than 50 percent are homegrown today. The firm expect the percentage to increase; 40 new analysts have been hired this year alone, the most since 2008.
"It's a transformation and renewal of the firm," Herr said.
Hedge fund recruiters and others see the move as highly unusual.
"It's certainly a novel way to try and change a sharp-elbowed culture. It may very well be successful but it doesn't have a lot of precedent," said Kate Thorneloe, an executive recruiter in financial services at CTPartners. "It does seem strange to be rewarded for doing what people are supposed to. You're not usually given a carrot for being more compliant or ethical."
"Most other reputable firms, you get to keep your job. You don't get paid extra," added Claude Schwab, former head of hedge fund recruiting at Heidrick & Struggles and founder and CEO of online hedge fund job site HFObserver.com.
Brian Davis, a partner at legal and compliance-focused placement firm Major, Lindsey & Africa, said the move could work. "It certainly raises the profile of the firm's compliance professionals," Davis said. "Money talks in this business. Putting a number on doing the right thing seems like a great start."
"if such policies are fostered and rewarded appropriately, this could prove to be an effective tool to vesting their analysts and managers in a more compliant and charitable working environment," added Jedd Wider, a partner at law firm Morgan, Lewis & Bockius.
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The move may inspire others, according to recruiters.
"There could be a huge movement afoot for other hedge funds to follow suit," said Kate Quinn, an executive vice president at DHR International. "This is a brilliant crisis management move. It keeps people sticky. It shows good faith and just squashes so many (anti-Wall Street) evangelists."
Sasha Jensen, founder and CEO Jensen Partners, agreed. "Based on what we are hearing from clients and investors, this move to highlight and reward ethical behavior is a first amongst alternative asset managers and is expected to be very well received," Jensen said in an email.
CTPartners and DHR have worked with SAC as one of many past clients. Jensen, Davis and Schwab have never worked for SAC or Point72. Cohen's shop is also not a client of Morgan Lewis.
The bonus system is part of a broader restructuring led by new president Haynes. The firm's stock pickers are being reorganized into seven units based on their sector and geographical investment focus. Each group of eight to nine portfolio managers will have two "sector executives," a compliance officer, a risk leader and a research coordinator, according to Herr.
The firm, which manages $9 billion to $10 billion, has about 860 employees, down from 1,050 when SAC settled with the government. About 460 staffers are based at Point72's Stamford, Connecticut, headquarters; most others are in New York City.
"I have no doubt that all of you will rise to the challenge and join with Steve and me to move us closer to achieving our goal of being the industry's premier asset management firm, adhering to the highest ethical standards as we offer the greatest opportunities to the industry's brightest talent," Haynes said in a recent memo announcing the reorganization.