After settling criminal charges of insider trading, SAC Capital Advisors hedge fund could operate with as little as one fifth of its roughly 900 employees, but founder Steven A Cohen's personal fortune is big enough to keep him important on Wall Street.
The 57 year-old billionaire, often called his generation's greatest trader, has a taste for expensive objects from Jeff Koons and Pablo Picasso artwork to mansions in Connecticut and on New York's Long Island, all part of his $9 billion fortune.
In the coming months Cohen will be reducing his $14 billion hedge fund to a family office after prosecutors announced on Monday that SAC would plead guilty to insider trading charges and would no longer manage money for outside investors. Dozens of marketing and sales staff have already been let go and analysts and portfolio managers have left on their own as SAC has began quietly winding down, returning billions of dollars to investors. The firm's London office will be shuttered and other offices in the United States and Asia could be next.
"Although Steven Cohen still has a vast personal fortune, he will not require the services of hundreds of people or an international operation to manage just his portfolio," said Mark Rifkin, a partner at law firm Wolf Haldenstein Adler Freeman & Herz. The knock-on effect could ripple through Fairfield County in Connecticut where many of Cohen's marketing, investor relations and human resources specialists live. While rival hedge fund managers in New York have said that SAC resumes are flooding Wall Street, they acknowledge that some potential employers worry about hiring someone from Cohen's operation just now. A plea deal that brings SAC's total fines and forfeitures to a total of $1.8 billion could also be felt in the art world where Cohen has put Andy Warhol's painting of late Academy Award winning actress Elizabeth Taylor and other works up for sale. And it could be felt in the Stamford, Connecticut real estate market if Cohen should put his vast office building at 72 Cummings Point Road up for sale, as one person familiar with his fund has suggested. For a family office, including a much smaller group of investment professionals, Cohen would have no need for the 98,905-square-foot office building that he bought for $19 million more than a decade ago.
Less regulation
For Cohen there will be fewer regulatory headaches including the costly and time consuming requirements of registering with the US Securities and Exchange Commission. But he will still have to file the quarterly ownership data required for investors of a certain size.
There will also be changes for SAC Re, the Bermuda-based reinsurance business, which SAC started with about $500 million only a year ago.
Cohen may even opt to change the name of the organization to wipe away any taint of insider trading transgressions. The firm was indicted in July and the plea deal has yet to be approved by the courts.
SAC Capital spokesman Jonathan Gasthalter said the firm is taking "responsibility for the handful of men who pleaded guilty" to insider trading while working at the hedge fund. He said the firm has "never encouraged, promoted or tolerated insider trading."
Cohen retains a loyal following of investors despite the road signs pointing to a smaller operation. They say the man who earned them double digit returns over the course of two decades could play the role of an important power broker. Three of the industry's biggest personalities - Julian Robertson, George Soros and Carl Icahn - have all shut down their hedge funds but still have an impact on investing through proxy contests, big scale investments or seeding newcomers.
"You have more freedom as a private family than as a large hedge fund investing money on behalf of institutional clients," said Stephen Martiros, an independent consultant to family offices and private investors.
For starters, Cohen could use a lot more borrowed money to run a significantly more aggressive portfolio if it is only his money at play, several experts said. Even now, SAC is up 15.95 percent for the year, ranking as one of the industry's best performers.
And Cohen could go back to giving some of his talented fund managers some start up money if they are ready to go out on their own.
"He's a trader and would be bored stiff sitting at home, so he can become an entrepreneur and invest in the funds that will take in outside money and effectively continue his operation that way," said one former investor who asked not to be identified because he is not permitted to speak about his firm's bets publicly.
