The move is in some ways a return to the free-spending ways of Cohen’s former hedge fund firm, SAC Capital Advisors, which stopped managing outside investors’ money after the firm pleaded guilty to insider trading three years ago.
It also reflects pressure on the hedge fund industry to deliver better returns than benchmark market indexes. Cohen’s firm, Point72 Asset Management, doesn’t manage external money, but the billionaire filed documents this spring to set up a new firm that can eventually seek outside funds.
Point72 had been paying its stock pickers a fixed 20% bonus on investment returns regardless of how they performed against broader benchmarks. That meant they could be paid handsomely just for matching a rising market.
Under the new bonus system, Point72 will boost those payouts to as much as 25%, but it will only pay the top bonuses on so-called alpha, industry parlance that roughly translates to investment performance above a market benchmark.
Point72 President Douglas Haynes said the change is designed to lure new staff during a potential shake-up of the hedge fund industry under pressure from a years-long stretch of sub-par performance.
Haynes said Cohen’s firm wanted to send a message that it is the most lucrative place for the best traders, and that there are consequences for those who fall behind. Some staff also kept 25% or more of their trading gains at Cohen’s SAC Capital.
The changes will apply to roughly 250 investment staff at Point72, based in Stamford, Connecticut. Bonuses for traders who are judged to produce below benchmarks will be cut from current levels.
Under a civil pact reached this year with the Securities and Exchange Commission, Cohen was barred from serving as supervisor of a hedge fund until January 2018.
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This article was published by The Wall Street Journal