As the day quickly approaches, inside-trader Steve Cohen will be allowed to manage other people’s money again. Reports have surfaced that the infamous hedge fund manager plans to replace the majority of his human traders with computer algorithms.
Cohen, with an estimated net worth $13 billion, ranks 72nd on Forbes richest-on-Earth list and 30th in the United States. He was the founder of a now shut down money management firm SAC Capital. In 2013, SAC settled a civil case for $1.8 billion on charges of insider trading after multiple employees were found guilty of the same charge. While Cohen was never found directly responsible for the actions of his firm part of the agreement, Cohen is banned from managing other’s money until January 1, 2018.
Since then, Cohen converted SAC into Point72 which, according to their own website, “is a family office managing the assets of its founder, Steven A. Cohen, and eligible employees”. It employs nearly 1000 employees, according to the website. But as January 1 quickly approaches, Cohen is searching for ways to get rid of his underperforming employees that he dislikes working with.
Famous for ruling with an iron fist, reports claim he keeps the office at a chilly 69 degrees so his employees can’t get comfortable and that he hates noises so the phones never ring, only lighting up. He has been quoted with saying “Do you even know how to do this f—ing job?” and says 96 to 98 percent of people applying to positions at Point72 should reevaluate their lives and apologize for offending Cohen with their cover letters.
Last year, Point72 recorded its second-worst year ever and Cohen is not happy. He is working on creating algorithms to trade stocks, just like his workers do currently, only for free and hopefully better. The machines would detect patterns and trade accordingly and outside data could be input to adjust activity. There are many benefits to this in the eyes of Cohen, possibly the most being that computers can’t snitch on him to the feds.
This is a radical idea, especially in a business that relies so heavily on emotions, real-time data interpretation and gut decisions. It has yet to be determined if this will net as much profit as human traders would, most likely profits would be lower but profit margin would be higher seeing as less employees would have to be paid and computers do not get paid bonuses for performing well.
Hedge fund managers have never been known for being pleasant people but Cohen seems to have crossed a line here. While his true motives are unclear, Cohen is taking unnecessary risk with his money and the money of future clients by relying on programs to trade millions of dollars daily for him.
Cohen does have a deep-rooted belief that his industry lacks true talent. A belief echoed after Point72 returned only one percent on its investments last year. Cohen may believe that having computers control his money has the same, if not less, risk than money controlled by the unworthy.
It could work. Computers, after all, are better at detecting patterns before humans can but can computers decide what to do when said patterns are recognized? There would have to be a lot of confidence that there were no bugs in the program’s code, and the machines would have to be protected from any would-be hacker trying to sabotage Cohen’s operations.
Cohen is not alone in this venture. Getting less attention because they are not as human-hating as he is, other head fund managers are experimenting and implementing similar measures. Soon, it seems, most stock will be moved through computer ‘hands’ rather than through humans.
While the SEC has rules and guidelines on trading that try to prevent events similar to stock crashes or insider trading, if someone managed to hack into enough of these hedge fund computers, they could have complete control of the value of money and assets and probably would not comply with said guidelines. This could lead to another stock market crash, or worse.
These risks do not seem to bother Cohen though, at least he would not have to deal with people anymore.
David Csordas is a staff columnist for The Daily Campus. He can be reached via email at firstname.lastname@example.org.