Steve Cohen is Planning to launch a $20 billion hedge fund
and many institutional investors are planning to steer
clear of it.
Cohen has been managing his own fortune at Point72 Asset
Management, the family office he created in 2014 after his
hedge fund firm, SAC Capital Advisors, pleaded guilty to
insider-trading charges in the largest securities fraud case
ever brought against a hedge fund. As part of the settlement,
Cohen closed SAC and paid $1.8 billion in fines. In 2016,
the Securities and Exchange Commission announced that Cohen
would be barred from managing outside money until January 2018
to settle separate charges that he failed to supervise a former
portfolio manager who had engaged in insider trading at
Cohen himself was never charged with insider trading, and
the brevity of his ban sparked immediate speculation about
when, not if, he would open a hedge fund after the order
expired not least of all because SAC delivered
astonishing annual returns of 29 percent for 21 years. Sure
enough, a Wall Street Journal report in late May said Cohen is
planning to launch a new hedge fund open to outsiders as early
as next year.
Cohen may have to rely on a network of rich hedge fund
managers and friends, as well as his own money, to get it off
the ground, as institutional investors including
corporate and public pension funds, endowments, and foundations
are not likely to pony up money. Of course, Cohen may
not need institutional money to reach $20 billion, which is
more money than he oversaw at SAC, but he may miss the
imprimatur that managing money for a nationally known pension
fund or an Ivy League endowment can lend. A representative for
Cohen declined to comment.
Institutions wont necessarily stay away because they
are skeptical of Cohens ability to generate returns.
Rather, they fear bad publicity. Even talking on the record
about possibly investing in Cohens hedge fund comes with
some reputational risk. Almost all of the institutional
investors interviewed for this story agreed to speak only on
condition of anonymity.
One chief investment officer of a corporate pension plan
expects few, if any, pension plans to invest with Cohen.
I cant see anybody with a corporate plan doing
something like this. Sooner or later, you have to report to the
board, says the CIO. Theres infinite career
risk for the CIO who tries to go down that path.
The CIO of a large U.S. public pension fund says underfunded
plans could clearly use Cohens returns, but trustees
wouldnt want to expose themselves to the potential bad
press. Its hard to justify the headline risk, which
could suck up an enormous amount of time and emotional
Some industry watchers think sovereign wealth funds could be
a big source of funds for Cohen, as many are not subject to the
kinds of transparency requirements that pensions must adhere
to. Endowments, too, could invest with Cohen, as they generally
are more secretive about the underlying managers in their
portfolios and have historically invested in asset classes and
firms that are off the beaten path.
At the same time, endowments are facing political and
governance issues, such as calls for divestment from fossil
fuels. It wouldnt look great to get out of
something like Exxon stock and then plow money into Cohen,
whose former firm was the poster child for bad hedge fund
behavior, notes one executive at an asset management
Others have reservations for more traditional reasons. An
active manager with $20 billion is too big to be able to
outperform in the current market environment, says Jim Dunn,
CEO and CIO of Verger Capital Management, which manages money
for endowments, including that of Wake Forest University.
There arent that many good ideas out there,
he explains. Its going to be hard to put that money
to work given how low rates are and given fund flows from
passive managers that are driving everything up.
Cohen has taken steps to make even his family office more
institutional. He has invested in a range of businesses,
including crowdsourced quantitative manager Quantopian; spent
heavily on compliance for Point72; and brought in a new team
with gold-plated pedigrees, including McKinsey executive Doug
Haynes, Point72s president.
Though Cohens reputation may have been tarnished by
his regulatory woes, his status as a hedge fund legend remains
firmly intact. Even outside finance, the name Point72 evokes
prestige. And even if institutional investors give Cohens
new fund a pass, there is one group of potential investors who
may not be able to resist it. Hell get big checks
from hedge fund managers, says a former hedge fund
executive. Its their way to give a giant f
you to regulators.