Who is Steve Cohen
Steve Cohen (b. June 11, 1956) is an American investor and hedge fund manager. He is the founder and CEO of Point72 Asset Management, a family office located in Stamford Connecticut. As of April 2018, he has a net worth of $14 billion.
Cohen was also the founder of the now-defunct SAC Capital Advisers, one of the most successful hedge funds ever. In 2010, the company became the subject of an insider trading investigation launched by the Securities and Exchange Commission (SEC). While Cohen himself was never charged, the firm pled guilty to trafficking in nonpublic information and was forced to return investor capital and pay $1.8 billion in fines. SAC was officially closed in 2016 when Cohen began serving a two-year ban on managing other investors’ money. The ban expired in January 2018.
BREAKING DOWN Steve Cohen
Steve Cohen graduated from the University of Pennsylvania’s Wharton School of Business in 1978 with a degree in Economics. Out of school, he began work as a junior options trader for boutique investment bank Gruntal & Co. By 1984, he was managing a trading group at the company. During his tenure with Gruntal & Co., Cohen’s trading routinely generated $100,000 a day for the firm and helped him build substantial personal wealth. In 1992, he launched his hedge fund, SAC Capital Advisors.
Founded with $25 million of Cohen’s own money, the firm initially used an aggressive, high-volume trading approach to investment management. Stock positions were held for just days, or in some cases, hours. In 1999, Cohen suggested that SAC regularly traded 20 million shares per day. By 2006, the firm’s trading accounted for 2% of all stock market trading activity. Over two decades SAC evolved and expanded its investment approach, using multiple strategies including long/short equity portfolios, fixed income, and global quantitative strategies. From 1992 to 2013, SAC averaged annual returns of 30% for their investors.
Cohen’s success with SAC was predicated on high risk, high reward trades. His portfolio rode the late-’90s Dotcom bubble to 70% returns and earned another 70% when he shorted those same stocks when the tech-bubble burst in 2000. In 2007, SAC took a $76 million stock position in Equinix. After the company released positive earnings a month later, its share value grew by 32%. At the beginning of 2012, Cohen made a $26.7 billion bet on Ardea Biosciences. When AstraZeneca made a deal to purchase the company three weeks later, the acquisition increased Cohen’s position on Ardea to almost $40 billion. SAC took long positions in Whole Foods in 2009 and 2010 for $49 million and $78 million, respectively. Both times, as a result of favorable operational changes made within the supermarket chain, the stock price soared.
Conversely, the firm also sustained a number of significant losses on the bets it made over two decades. A series of multimillion-dollar long positions made throughout the 2000s on pharmaceutical companies including ImClone Systems and Human Genome Sciences was ultimately unsuccessful and costly to the portfolio.
Legal trouble for Steve Cohen
In 2008, SAC had accumulated a $700 million long position in pharmaceuticals Elan and Wyeth, which were in joint development of a drug to treat Alzheimer’s disease. When the companies announced the disappointing result of their second phase of clinical trials, both stocks plummeted. But SAC Capital didn’t share in the loss. In the week prior, Cohen had not only liquidated SAC Capital’s nearly $750 million positions in Elan and Wyeth but shorted the stocks. Betting against the companies earned him a profit of $275 million.
In 2012, the SEC indicted Mathew Martoma, a former SAC Capital portfolio manager on charges of insider trading. The SEC alleged that Martoma had received information about the Elan and Wyeth clinical trials before the details were released to the public and used that information to advise Cohen to sell out of the position. The United States attorney who brought charges against Martoma in Federal Court referred to the incident as “the most lucrative insider trading scheme ever.” Martoma was found guilty and sentenced to nine years in prison. Cohen himself was never charged. A civil suit brought against him by the SEC for failing to reasonably supervise a senior employee was dropped in 2013.
That same year, SAC Capital was also charged and pled guilty to insider trading. In addition to $1.8 billion in penalties, the settlement included terms that barred Cohen from managing the assets of other investors. In 2014, he converted his investment operations from SAC Capital to Point72 Asset Management.
In January 2018, the firm was granted clearance to raise and manage outside capital.