Talk about key man risk. SAC Capital, does not just bear the initials of founder Steven Cohen. He dominates the Greenwich trading floor that has churned out such enviable investment returns and built his reputation as a star trader. And over half the $14bn under management is said to be his own fortune.
Why would somebody buy a significant stake in a firm that appears to depend so heavily on an individual and remains privately-owned – at least for now? There is added uncertainty because Mr Cohen is attempting a shift of emphasis away from his trademark quick-fire trading towards a less proven model of longer-term activist investing.
That said, SAC might not be quite as risky as it looks. If Mr Cohen’s own money is charged full management fees (a slightly bizarre concept) and can be locked up firmly for the long-term, SAC might stack up fine against other hedge funds where cash can flee at a moment’s notice. There is plenty of wealth sloshing around in Asia, the Middle East and Europe that could be used to buy a stake alongside an investor as hot as Mr Cohen. The opportunity might even pique the interest of a wealth management company wanting the extra benefit of access to SAC’s funds for its high net worth clients.
A key challenge for Mr Cohen will be convincing potential investors that the talent pool is deep enough for SAC to maintain performance even if he were unable to work or decided to step back. If he can achieve that, Mr Cohen might have a platform to broaden SAC’s image beyond one of reliance on his own skills. He would also get a tidy cash infusion that might even tempt him to add Damien Hirst’s $100m diamond encrusted skull to the pickled shark he already owns.
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