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Steve Cohen and the law of big numbers

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By Matthew Goldstein

All too often the bigger an investment fund gets, the more difficult it is to continue to generate blowout returns.

Maybe the best example of a fund getting so popular and ultimately unwieldy is Fidelity’s Magellan fund.  One has to wonder if on a smaller scale, the same phenomena is happening to Steven Cohen’s SAC Capital Advisors.

As the below chart shows, Cohen’s now $13 billion hedge fund posted it most eye-popping performance numbers during its first decade of existence. Back then, SAC Capital had a fraction of the assets under management it has today and was considerably more nimble. It was back in those days when Cohen earned the reputation as the best trader of his generation.

However, more recently, as assets at SAC Capital have swelled, the returns churned out by Cohen & Co. have started to come back down earth. Overall, Cohen’s fund is still exceeding the industry standard. But the numbers SAC Capital is now putting up pale compared to Cohen’s track record.

SAC Capital’s Steve Cohen yells fore!

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HEDGEFUNDS/GOLFMatthew Goldstein

Wall Street and golf have had  a long and storied love affair. And over the years, many a hedge fund manager has given up the trading game to spend more time on the links.

But the revelation that SAC Capital has hired a former institutional stock broker to spend most of his time on prestigious golf courses, schmoozing corporate executives and wealthy investors, is another stark example of what separates hedge fund managers from mere mortal investors.  As several securities experts told me, it doesn’t really matter whether or not a corporate executive says anything of real substance to Steve Cohen’s unofficial golf pro, Sam Evans. What matters is that Cohen and his traders are getting the kind of unique and intimate access to corporate executives that ordinary investors can never dream of.