Unstructured Finance

Why Steven Cohen won’t turn SAC into a family office

By Matthew Goldstein

Every time the insider trading investigation thrusts Stevie Cohen back into the spotlight, there’s always speculation about whether the billionaire trader will simply give back money to his outside investors and convert his $14 billion SAC Capital into a family office in order to avoid the unwanted headlines. But as tempting as that might be to the publicity-averse Cohen, the well-known trader has a big financial incentivel to keep managing money for his outside investors.

SAC Capital’s fee structure–one of the highest in the $2 trillion hedge fund industry–probably pays for a good chunk of Cohen’s overhead, say people in the hedge fund industry. These sources say that by charging a 3 percent asset management fee and skimming off as much as 50 percent of the firm’s trading profits, SAC Capital’s outside investors provide Cohen with a rich source of cash to pay his 900 or so employees.

Now sure, if Cohen were to return the roughly $6.3 billion in outside money that SAC Capital manages, he could reduce his workforce dramatically and move his operation out of its spacious offices at 72 Cummings Point Road in Stamford, Conn. But with billions of his own money invested in SAC Capital, Cohen would still need to employ a healthy crew of analysts and traders to manage his personal wealth in order to get the kind of double-digit returns he’s accustomed to. Last year, SAC Capital was up a little over 10 percent after accounting for fees–compared to the industry average of about 5 percent.

And returning all that outside money would also limit Cohen’s ability to make big trades. When you factor in leverage — or borrowed money — SAC Capital effectively manages $43.8 billion in assets — roughly 2.7 times the firm’s $14 billion in invested dollars from customers, Cohen and his employees. Strip away the outside money, it would severely restrict Cohen’s ability to make large trades in many different sectors and markets.

That’s why when an big outside investor like Blackstone gives the signal that it has no plans to redeem its $550 million, its more than just symbolism to Cohen and SAC Capital. For a fund like SAC Capital that operates at nearly 3 times leverage, that $550 million investment is really worth more than $1.5 billion in investible assets.

Steven Cohen reenactment theater

By Matthew Goldstein and Jennifer Ablan

In the end, one of the more memorable takeaways from the Steve Cohen deposition we unearthed is the feud between the lawyers over what to call the billionaire hedge fund manager: “Stevey” or “Mr. Cohen.”

Bess Levin at Dealbreaker.com used a her unique wit to deconstruct the verbal dispute between Cohen attorney Marty Klotz and Fairfax Financial lawyer Mike Bowe.  And now CNBC’s David Faber weighs in with his own retelling of the verbal jousting. (see video clip here).

And yes, we agree with Squawk on the Street host Melissa Lee that we need to see a visual reenactment as well–since it’s unlikely anyone is going to get the videotaped version of the deposition anytime soon. But we’ll try.

Steve Cohen’s forbidden transcript

By Matthew Goldstein

Hedge fund titan Steve Cohen is taking steps to appear more open these days.  Over the past year or so, he’s been showing up at industry conferences, charity events–even allowing himself to be photographed with his wife for a glossy spread in Vanity Fair magazine.

But there are some things the SAC Capital founder is drawing a line in the sand over when it comes to greater transparency, including some of his own words.

Cohen and his legal team are fighting hard to keep hours worth of deposition testimony that he recently gave in a civil lawsuit  under wraps. Last year, the billionaire trader sat for a deposition in the long-running stock manipulation lawsuit filed by Canadian insurer Fairfax Financial against SAC Capital and other hedge funds, including Dan Loeb’s Third Point and Jim Chanos’ Kynikos Associates.

Steve Cohen runs away from his Fairfax co-defendants

Steven Cohen wants a five-year-old stock manipulation lawsuit filed by Canadian insurer Fairfax Financial Holdings to go away.

Earlier this month, lawyers for Cohen’s SAC Capital Advisors filed a motion for summary judgment, claiming Fairfax has failed to produce any evidence his $13 billion hedge fund conspired with other traders to crush the insurers stock. SAC Capital’s lawyers write that even though Fairfax has “received millions of pages of documents from SAC, other defendants, and third parties…not a single scrap of evidence suggests that Mr. Cohen engaged in even one of these alleged acts.”

Fairfax, in the long-running lawsuit, contends that SAC Capital conspired with other big named hedge funds to spread negative information about Fairfax to drive down the stock’s price. The insurer contends the hedge funds were shorting–or betting against–Fairfax’s stock.

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