How hedge fund manager Steve Cohen averaged 30% returns for 18 years
Sunday, April 25, 2010
In late January, billionaire Steven A. Cohen hosted a golf outing for two dozen people at Bear Lakes Country Club in West Palm Beach, Fla.
Most of his guests were investors in his hedge fund firm, SAC Capital Advisors. The party played the Lakes Course -- so named because 12 holes out of 18 have a water hazard -- as 30 mph gusts blew off the Atlantic, says Jeffery J. Vale, director of research at Infinity Capital Partners and one of Cohen's guests.
The outing was unusual. Cohen, 53, spends most days trading stocks on his 180-person trading floor in Stamford, Conn. He and 100 portfolio managers buy and sell 100 million shares a day, about 1 percent of all shares traded on U.S. exchanges.
Two years ago, Cohen didn't need to take his investors golfing. He let his record -- a 30 percent average annual return for 18 years -- speak for itself.
"There was a perception that Steve was the wizard behind the curtain," says Vale, an SAC client since 2001.
"Performance was so good, most investors probably didn't care."
SAC, an acronym of its founder's name, now manages $12 billion, down from $16 billion at its mid-2008 peak. The firm's flagship SAC Capital International fund suffered a 19 percent loss in 2008 -- its first ever -- during a stampede out of hedge funds by panicked investors. The financial crisis and subsequent recession killed off 2,300 funds in 2008 and 2009, according to Chicago-based Hedge Fund Research.
Cohen's new openness may be designed to put investors at ease. Two former employees of SAC have been linked to the Galleon Group scandal, the largest insider-trading probe ever to shake the $1.6 trillion hedge fund industry. Neither is accused of engaging in insider trading while working for SAC.
Cohen is lifting the veil because he must, says Peter Rup, chief investment officer at Artemis Wealth Advisors, a New York-based company that manages $352 million for wealthy families. He says investors stopped tolerating SAC-type secrecy after New York investment manager Bernard L. Madoff was exposed as a fraud.
"After Bernie Madoff, nobody will invest in an operation that is very clandestine," Rup says. "Even the most crass and abrasive managers are more investor-friendly now."
Rup considered investing in SAC in 2005, he said, then balked when neither Cohen nor any of his analysts would meet with him.
Cohen, who lives on a 14-acre estate in Greenwich, Conn., which he bought for $14.8 million in 1998, allowed a reporter to visit his offices in Stamford. He declined to comment for this article.