The world's most anticipated fund launch of 2018


Steven A. Cohen, Point 72 Asset Management, USA

By 2005, Steve Cohen was widely acclaimed as the world's "hedge fund king". His firm - SAC Capital Advisors - was delivering astounding returns to clients - 30% CAGR over 18 years by 2008. He was the best paid hedge fund manager, topping annual compensation of over US$ 1 Billion a decade ago (Rs.6500 crs p.a.). And then came the fall - a series of SEC investigations between 2009 and 2012 into his firm and its key employees on allegations of insider trading. While no insider trading charge was established against him personally, he was charged with negligence in overseeing the activities of his key employees who were charged with insider trading. He settled the suit by paying a fine of US$ 1.2 Bn, agreeing to close SAC Capital and agreeing to desist from managing other people's money until Jan 2018. That still left him with his personal fortune of over US$ 11 Bn which he put into a new firm, Point 72 Asset Managers in 2014, and started managing his family office's assets as a hedge fund. Point 72 started out with a bang, delivering 15% in 2015 vs -1% for the benchmark, and the world once again took note of Cohen's money making prowess. As we write this piece, word is out on Wall Street that Cohen is preparing the decks for launching a new hedge fund offering in Jan 2018 - a launch that some observers say can easily top US$ 10 Bn and possibly make its way to become the biggest fund launch ever. A minimum commitment of US$ 250 Mn and fees of 2.5% don't seem to be deterring his fans - perhaps because ultimately, money talks.


Steven A. Cohen is a famous, or according to some infamous investment manager on Wall Street. He has had to face of insider trading charges,though these have not been proved. Steven A. Cohen is perhaps a fallen star, yet in his heyday he was one of the most successful of investment managers in the world. So successful, in fact, that it provoked the SEC to launch an investigation into his trading methods. And come Jan 2018, we will know whether this fallen star manages to rise like Phoenix from the ashes of his past, as many Wall Street observers are betting he will.

Today, he is the Chairman and Chief Executive of Point72 Asset Management, a family office for managing the assets of Steve Cohen and some of his employees. He started S.A.C. Capital Advisors (SAC) in 1992. He founded the Point72 Asset Management office in 2014.

Early Years

Steve Cohen started his investing career early. As a child, he used to study stock tables in the local newspaper in his hometown Great Neck and engaging with the local stock brokerage house. "There was something in my blood, something that I loved about trading," he says referring to those early years. He accumulated some money and was soon investing. His fist pick, Perkin Elmer, turned out to be a winner.

Steve Cohen completed a B.S. in economics from the Wharton School at the University of Pennsylvania. His career as an investment manager began at Gruntal & Co a New York brokerage firm. Here, for fourteen long years he managed proprietary capital. He started in the firm's options arbitrage area. He quickly got bored of hedging stocks because he saw the firm selling a position up 20 cents, when if it had only held on, the stock would have gone up a dollar. During this time, he was doing well financially, earning in seven figures, with the firm sharing 60% of the profits he made for them.

His best time at Gruntal was when he was shorting the market heading into the crash of 1987. "I made a lot of money," he said, "and I also covered on the open the next day." Had he not done that he would've put his firm out of business, he said. (dealbook nytimes, Peter Lattman, February 15, 2011).

Investment Philosophy

Cohen's investment philosophy is straight forward. He says that it is important to make concentrated bets and have conviction in your very best ideas. Often up to 10% of his portfolio may be invested in one stock. He also believes that high diversification is good.

Investment Strategy

At first, SAC was mainly involved in just trading activities. Then as Cohen realised that business could be expanded, he began hiring assistants to analyse securities, adding another dimension to the business. Cohen is considered to be a gifted 'tape reader.' He had a special knack for predicting, correctly, stock price movements. "I always tell my traders that they would've loved the 1990s because it was a fairly easy time to make money," he said, referring to the enormous bull market rally, particularly in technology stocks. "A lot of my money came from that period. It was a tremendous time in the market." (dealbook nytimes, Peter Lattman, February 15, 2011).

SAC Capital

SAC Capital at its height managed $17 billion in assets. At the turn of the century, it became harder and harder for investors to beat the market. Many firms hired whizz kids from leading universities and invested in computers for data crunching and analysing to find that extra bit of edge to second guess the market. Steve Cohen took a completely different path. He chose to pay big commissions to various banks for information - or so it is alleged. He allegedly paid people to befriend company executives in an attempt to glean any bit of information that gave a clue about a company's actual state of business.

Cohen was able to achieve fantastic returns. In 2008 SAC had shown 30% average annual return for eighteen years. In fact it sounded too good and the Securities and Exchange Commission, SEC filed a case against SAC for insider trading. However nothing was proved against Cohen. In 2013, he settled the case, paying a fine of $1.2 billion and agreeing to close SAC Capital.

Nowadays he has changed his tactics. "The sustainability of actively trading as you get older becomes more difficult." So, "to make an impact running big capital you have to express your ideas in size."

The old style of functioning involved feeding strongly held trading ideas from individual portfolio managers, who focused on unique stock sectors, up to the so-called 'Cohen Book'. This book represents the founder's own portfolio. This method has now been put on the back burner.


He then started Point72 Asset Management a family office, which means that it manages the assets of his family and a few trusted former employees. The firm has $11.1 billion in assets under management. In 2015, Point72 assets rose 16% while hedge funds in general reported a fall of 1%. At Point72, Cohen has adopted a hands off approach too management, concentrating more on mentoring and grooming investment managers than getting into the nitty gritty of investing. He has invested about 25% of his funds in non US stocks.

He manages risk a number of different ways, he said, including using Barra risk models and constantly monitoring his net exposures. He says he hedges with S&P futures "all day," and although they are a positive driver of profits he makes most of his returns come from individual stock ideas. (dealbook nytimes, Peter Lattman, February 15, 2011).

Cohen Quotes

"In the '90s it was balls to the wall, long and short with no hedging," he recalled, according to people at the event. "I could be long at 12 p.m. and have by book totally short by 3 p.m."

That said, he always considers technical analysis. "Any time I get into a position, I'll look at the chart first," he said. "I always default to the chart. It is critical for entry points."

What's the biggest mistake you've made?

He said his Volkswagen short in October 2008 - an investment that hurt many a trader - caused a $250 million loss in a week. He and his team were able to mitigate the damage and walk away down only $75 million on the trade.

He also remembered getting his clock cleaned on a long position in Tenet Healthcare in 2002, losing $75 million to $80 million on the trade. He described the stock drop in Tenet because of a scandal as one of the worst days of his life.

Mr. Cohen says that these days his trading has become much more complex than in the late 1990s, when he was more trading focused. But he says he still watches the screens all day and is always reacting, tending to make changes when things are moving against him. "I spend most the day watching my losers because if those are being managed correctly the winners take care of themselves," he said, according to people at the event.

His lessons from the market tumult in 2008?

"Leverage, concentration and illiquidity are the three things that can kill you," he said. SAC's big losses came from new areas that they had entered, like corporate debt. The firm got bigger for the sake of getting bigger, he lamented, and now realizes that they can't do everything. Quoting his father, Mr. Cohen said, "A shoemaker makes shoes. You have to stick with what you're good at."

(dealbook nytimes, Peter Lattman, February 15, 2011).


Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.

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