After 21 years managing money for wealthy clients, hedge-fund billionaire Steve Cohen is well on his way to turning SAC Capital Advisors LP into a family office.
In November, SAC agreed to stop managing money for outside clients. Cohen personally will pay a record fine of $1.8 billion to settle accusations that the firm engaged in insider trading for more than a decade.
Clients, who had about $6 billion with Cohen at the beginning of 2013, fled the Stamford, Connecticut–based firm over the course of the year as its legal troubles mounted. Six former SAC employees had pleaded guilty to trading on inside information as of mid-December. SAC portfolio manager Michael Steinberg was convicted on Dec. 18 of conspiracy and securities fraud, and Mathew Martoma, another former SAC manager, is now on trial.
Cohen’s main fund, SAC Capital International, gained 16 percent in the first 10 months of 2013, placing it at No. 51 in the Bloomberg Markets ranking of the 100 top-performing large hedge funds. It produced average annual returns of 25 percent over the past two decades. Yet as of December, SAC had virtually no outside capital. What was left was employee money and Cohen’s own wealth, which stands at almost $9 billion -- after he pays the government -- according to the Bloomberg Billionaires Index.
SAC always paid its employees well because of the higher-than-average fees it charged: 3 percent of assets and up to 50 percent of any gains the firm made. That revenue also made Cohen, the sole owner, exceedingly wealthy. Now, he’s trimming personnel because he must pay everyone out of his own pocket.
SAC employed about 1,000 people in April 2013, according to a regulatory filing.
As of September, the number had shrunk to 950, about 400 of which were investment professionals. In October, Cohen said he would close his London office, where more than 50 people worked.
Cohen’s future now rests in the hands of regulators and the courts. He is still waiting for U.S. District Judge Laura Taylor Swain to accept the firm’s guilty plea. The U.S. Securities and Exchange Commission, which has filed an administrative action against the billionaire for failure to supervise his employees, has said if it wins it will seek to bar Cohen from ever managing money for others again.
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