A Kinder, Gentler Steve Cohen? Just Ask These Ex-McKinsey Gurus

  • Husband-and-wife team hired to help remake Point72's culture
  • Overhaul is part of billionaire's effort to rebrand firm

Just try competing with five of your hyper-numerate colleagues on a math puzzle while your boss, billionaire Steve Cohen, and a team of his senior managers look on.

It was one of several tasks that the top 30 executives at Cohen’s Point72 Asset Management were asked to perform earlier this year at Gabriele’s Italian Steakhouse in Greenwich, Connecticut. Turns out it took three times longer, on average, to do the math with the audience watching.

Steve Cohen

Photographer: Scott Eells/Bloomberg

“You could see people getting nervous and sweating,” says workplace culture guru Lindsay McGregor.

The exercise, conducted by McGregor and partner Neel Doshi, was meant to demonstrate that the fear of being judged can kill performance. The husband-and-wife team were hired by Point72 President Doug Haynes late last year to help remake the culture of a firm where competition was fierce, management was harsh and employees made boatloads of money for Cohen, their clients and themselves. The firm’s previous incarnation, SAC Capital Advisors, returned 25 percent annually for its clients over two decades, even after taking a 50 percent cut of profits.

Cultural Overhaul

The culture overhaul is part of a larger effort by Cohen to rebrand his firm and to create some distance from legal troubles of the past few years. In 2013, Cohen agreed to stop managing money for outside clients to settle charges of insider trading against the firm. Within months, he had dropped the name of SAC -- his initials -- and adopted the less personal Point72, named for his headquarters’ address. He also hired Haynes, a former McKinsey & Co. director, to run what has become Cohen’s $11 billion family office and to help sanitize its Wild West reputation.

“The changes are sweeping and Steve has really been at the center of all of it,” Haynes says. “He is a restless, innovative person who is always wondering how it can be done better.” Haynes added that he hired his former colleagues McGregor and Doshi because “I’m not the culture guy.”

The ultimate goal for Cohen could be to run a hedge fund again. Even a small number of fee-paying clients would help defray the costs of managing Cohen’s personal fortune. Within the last year, executives at the firm discussed asking the Securities and Exchange Commission to limit any ban on managing outside capital to three years, according to two people familiar with the matter.

SEC Case

The SEC has still not resolved its two-year-old civil case against Cohen accusing him of failing to supervise two employees, Mathew Martoma and Michael Steinberg, who were found guilty of insider trading. Steinberg was recently exonerated of that charge and Martoma is appealing his conviction. A recent appeals court ruling made it harder for prosecutors to prove insider trading and jeopardized the crackdown by U.S. Attorney Preet Bharara. Point72 executives have repeatedly said the firm has no plans to manage outside capital.

Doshi and McGregor, who fell in love while working at McKinsey, run a management consulting firm called Vega Factor whose motto is “We engineer high performing cultures.” They chose the name, according to the company website, “because our planet wobbles like a top, eventually, there will be a new North Star: Vega. By naming ourselves Vega Factor, we remind ourselves that nothing is constant.”

They embedded themselves in Point72 this year to help steer the firm toward a culture driven by better communication, where employees can learn more and learn it faster than anywhere else, they say.

“People mistakenly believe that in the world of hedge funds, the only motive is money,” Doshi says.

Mental Workout

He and McGregor preach that bad cultures are dominated by fear and greed. In interviews with staff members, the duo found the highest-performing Point72 managers were motivated by the mental workout they got.

“One portfolio manager we interviewed said, ‘Point72 is like boot camp for the mind. I’m learning to solve puzzles and connect dots better than I could learn anywhere else,’” McGregor says.

People familiar with the firm say it’s more like boot camp, full stop, and the tone is set at the top. Former SAC employees are full of stories about Cohen’s acerbic manner. If a portfolio manager or analyst couldn’t answer a question about a stock, the billionaire founder was likely to lash out. “Do you even know how to do this f------ job?” was a standard barb. Impatience reigned. Cohen once upbraided a subordinate for having no trading ideas that year. It was the first week of January. The billionaire himself acknowledged his temper, once saying that employees need only worry if he yells at them after the market is closed.

Shark Tanks

Competition among teams was fierce -- one former employee described it as shark tanks within a shark tank. Senior portfolio managers could measure their performance against internal rivals throughout the day because all profits and losses could be seen in real time. There were multiple groups picking stocks in the same industries.

Worse, every investment professional fought to funnel his or her best picks into the portfolio Cohen managed personally. If the chosen ideas made money, they’d get a piece of the profits. In its case against SAC and its employees, the government said the bonus system created an incentive for traders to seek inside information. A year ago, Haynes said the firm would stop the practice because of “regulatory and reputational risks.”

Camera Crew

Managing Cohen’s fortune, Point72 has been in growth mode during the past year, adding a big-data research unit, a multistrategy fund, and hiring 150 investment professionals, mostly analysts with no more than five years of experience. It hired 15 college graduates out of 400 applicants this summer for its Point72 Academy, a training program for developing investing talent. In May, the firm invited a CNBC camera crew to its headquarters in Stamford, Connecticut, to broadcast from the trading floor.

Haynes says being more open is good for the firm’s image. “The clear feedback that we got is that we were a mystery, and it made people uncomfortable,” he says.

Improvement Advice

Before Point72’s midyear evaluations, McGregor and Doshi held sessions with the hedge fund’s U.S. portfolio managers in company cafeterias and conference rooms to explain how typical performance reviews add little value and can kill innovation. Point72 says it’s made evaluations less about past performance and more geared to providing feedback and advice for improvement.

The emphasis on better communication prompted one manager to create a regular meeting for his team, getting everyone together on Fridays to talk about the week’s successes and failures, according to McGregor. In March, the firm also stopped its down-and-out policy, which called for money managers to be shut down if they lost 10 percent of their portfolio’s assets.

The duo says they’re even helping prevent Point72 employees from getting fired. Doshi and McGregor taught managers that often their employees are blamed for poor performance when the problem is they’re in the wrong job. At least one associate in danger of being dismissed was reassigned instead, after his managers realized he was in a role that didn’t suit his strengths, McGregor says.

Company ‘Saved’

“Now the manager is happy, the executives are happy, the company was saved from a bad situation,” McGregor says. “It’s shifting to a culture of when something goes wrong, what are the things all around that person we could change to make them more successful.”

Some employees, who asked not to be identified discussing internal affairs, say Doshi and McGregor’s teachings have yet to reach the firm’s core, and recent efforts by executives to change have mostly just increased the number of internal e-mails and meetings. One former Cohen client says the changes aren’t much more than consultant mumbo jumbo.

“You go work at Google for stuff like that,” says Brad Alford, chief investment officer at Alpha Capital Management in Atlanta. “You go to Point72 to kick butt and make money and retire before you turn 30.”

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