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What's Eating Steven Cohen?

May 31, 2017

[Photo:  by Alan Jeffery / CNBC]


by Howard Haykin


So, Steven A. Cohen plans on managing a $20 billion hedge fund - starting in 2018, when he’s no longer sidelined by SEC and CFTC restrictions. Such a figure would eclipse the $16 billion that SAC Capital once managed and would be the biggest hedge fund launch in history.


In 2016, Mr. Cohen settled SEC and CFTC civil charges that he failed to supervise employees involved in insider trading. In those deals, without admitting or denying any wrongdoing, Mr. Cohen agreed not to manage outside money in 2016 and 2017. SAC Capital had earlier pleaded guilty to insider trading, for which it paid $1.8 billion in penalties. Preet Bharara and his team of federal prosecutors were never able to stick Cohen with any criminal charges.


Mr. Cohen currently runs Point72 Asset Management, his family office that employs 1,000 employees and operates out of Stamford, CT.


COHEN’S ‘FLIP OF THE BIRD’ COMEBACK IN 2018.    The NYPost refers to Mr. Cohen’s proposed comeback as a “$20B Flip-of-the-Bird to the SEC” – a derogatory expression that connotes “the act of extending the central digit of the hand with the intent to cause offense.”


If that's accurate, one world can best explain his motives - HUBRIS! Defined as excessive pride or self-confidence, in Greek tragedy, the term "hubris" describes excessive pride toward or in defiance of the gods, which in turns brings about the downfall, or ‘nemesis’, of the perpetrator of hubris.


Hubris is on display repeatedly among the uber-wealthy financial types – particularly by private equity investors, who can annually earn upwards of hundreds of millions – even billions – of dollars. Hubris is also exhibited during seemingly senseless corporate take-overs. Let's use Bank of America as an example.


After the millenium, BofA Chief Executive Ken Lewis was so hell-bent on building the world’s largest bank that he pursued nonsensical and costly takeovers – like the $4 billion acquisition of Countrywide Financial. That one investment cost, alone, cost the bank tens of billions in settlements and legal fees. [And, for the record, HUBRIS is also a powerful driver among power-hungry types, like our current President.]


Yet, to accomplish his monumental fund-raising goal – notwithstanding his starting base of $11 billion (Cohen's personal fortune under management at Point72) - Mr. Cohen will likely need to rely on something other than his recent investment returns. While he averaged 29% annual returns at SAC Capital, Point72 returned just 1% for 2016 (as compared to over 9% for the S&P 500 Index) – his 2nd worst annual performance ever.


Among other things, some say Mr. Cohen would have to lower his once legendary high fees. And his new fund might come with a so-called pass-through arrangement - a relatively uncommon structure under which recurring expenses are paid directly by investors instead of the fund firm.


Regardless of his motives and methodologies, Steven Cohen will undoubtedly succeed. That’s because he has much to prove – both to the regulators, and, after his ‘announcement’, to the rest of the world.