The annual ranking of the highest-earning hedge fund managers for 2012 reveals at least two intriguing truths: First, running a large fund, and raking in billions in fees, seems to be as effective a way of making money as earning market-beating returns for one’s investors. And second, in spite of the intense heat of a multi-agency government insider-trading investigation, SAC Capital Advisors’ Steven Cohen is continuing to make a tremendous amount of money.
The Rich List, just released by Institutional Investor’s Alpha, suggests that the 25 highest-earning hedge fund managers together brought in $14.14 billion for the year, close to the total for 2011. At No. 1 sits David Tepper of Appaloosa Management, with $2.2 billion; Raymond Dalio of Bridgewater Associates is second with $1.7 billion; and Cohen is third, at $1.4 billion. Rounding out the top five are James Simons of Renaissance Technologies, with $1.1 billion, and Ken Griffin, the founder of Citadel, at $900 million.
SAC Capital returned 13 percent last year after fees, slightly below the Standard & Poor’s 500-stock index’s 16 percent climb. Still, Cohen amplified his already enormous net worth by more than a billion dollars largely as a result of the fees his $15 billion fund charges, which include 3 percent of assets—the “management fee,” which is meant to pay for overhead and expenses—and as much as 50 percent of profits.
Cohen’s earnings in 2012 stand out next to another number: the $602 million SAC agreed to pay the Securities and Exchange Commission to settle claims over trades made by former SAC portfolio manager Mathew Martoma, who was charged with insider trading in two drug stocks while employed at the hedge fund. The settlement would have been the largest ever for an insider-trading case, and it would have moved one legal challenge off the firm’s books. As the owner of SAC, Cohen is largely responsible for the payment, which represents about half of his take for 2012. But U.S. District Judge Victor Marrero recently refused to approve the settlement, citing a small measure of heartburn he was experiencing over the standard “neither admit, nor deny wrongdoing” provision that would have permitted SAC to resolve the case without acknowledging any culpability. Cohen himself has not been accused of any wrongdoing.
In related news, SAC was just sued by the Birmingham Retirement & Relief System, a pension fund, over losses in the drug stock Wyeth, which is at the heart of the ongoing Martoma case. Martoma has pleaded not guilty. An SAC spokesman says, “Any liability to these plaintiffs is fully discharged by our settlement with the SEC, and this lawsuit presents no new liability to SAC.”