Home Hedge Funds Can a Hedge Fund Win the World Series? – The Journal.

Can a Hedge Fund Win the World Series? – The Journal.


This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

Ryan Knutson: Steve Cohen runs one of the biggest hedge funds in the world, a firm called Point72. It manages almost $25 billion in investments, mostly for big-time investors.

Juliet Chung: Steve Cohen is a major figure in the hedge fund industry. He’s one of the marque names, one of the hedge fund titans.

Ryan Knutson: That’s our colleague Juliet Chung, who covers hedge funds. She says Cohen is known for his ability to generate massive returns.

Juliet Chung: You know, in some years, he’d have returns of 70%, 80%.

Ryan Knutson: In 2020, Cohen took on a new hobby outside the world of hedge funds. He bought the New York Mets. It was the kind of purchase that tends to make hedge fund investors a little nervous.

Juliet Chung: You know, there are some red flags that veteran hedge fund investors look for, a divorce, buying a professional sports team. Investors are worried about whether a manager’s going to be distracted or not by what they’re going through personally or by any toys greater wealth may bring them.

Ryan Knutson: Despite that, Cohen has gone all in on the Mets, so much so that he’s doing something unusual. He’s letting his employees at Point72 take on second jobs, moonlighting for the New York Mets.

Juliet Chung: Honestly, I thought it was a little crazy. You know, hedge funds are known for charging some of the highest fees in the industry. It immediately sort of raised all these questions in my mind. How many employees were doing this? Who was paying for their time working on the Mets and not Point72? Were investors in Point72 aware of this? It immediately raised a bunch of questions.

Ryan Knutson: And was one of those questions does this mean the Mets are finally going to be a winning baseball team?

Juliet Chung: I have to confess that did not cross my mind.

Ryan Knutson: But for our colleague Jared Diamond, who covers baseball, this is exactly what he’s been wondering about.

Jared Diamond: Steve Cohen is the richest owner in baseball. So that’s why many of us who follow baseball and work around baseball believed he was going to do things differently. The question was always how? What was he going to do that was going to set the Mets apart? This was the answer, and this is not necessarily the answer I think many people anticipated because it didn’t involve players.

Ryan Knutson: Welcome to The Journal, our show about money, business and power. I’m Ryan Knutson. It’s Monday, May 23rd.
Coming up on the show, can one of the richest hedge fund owners on the planet save one of the worst teams in baseball?
Our colleague, Jared, says that before Steve Cohen bought the Mets, they’d been struggling for years.

Speaker 4: The circus is on, just a calamity of miscues here by the Mets. It all starts with David Wright.

Jared Diamond: The Mets generally have not been very good. Now, they were in the World Series in 2015. That was a great season. But for the most part, really over the last two decades, they’ve really struggled.

Ryan Knutson: The Mets have made the playoffs just three times in the last 20 years.

Speaker 5: Dropped the ball. He dropped the ball. Here comes Teixeira. And the Yankees win. Oh my goodness. He dropped the ball.

Ryan Knutson: Then in 2020, the Mets announced new ownership. The team’s longtime owners, the Wilpon family, was out and Steve Cohen was in.

Jared Diamond: People are thrilled. And then they’re even more thrilled when they find out the guy buying them is not just anyone. It’s someone with a net worth estimated at what? $14 billion at the time. And, by the way, is a lifelong Mets fan from Long Island. It’s the perfect person if you’re a Mets fan, a guy that loves the team, a guy who has more money than any human being could ever need and a willingness to spend it to make the team better.

Ryan Knutson: And from the moment he took over the Mets, Cohen started to make changes.

Jared Diamond: He fired basically the entire front office and brought in new people, a new team president, new general manager, and then he started spending on players. So this past off-season, the off-season between ’21 and ’22, he’s committed hundreds of millions of dollars.

Ryan Knutson: After Cohen bought the Mets, the league beefed up its tax on teams with huge payrolls. Some have nicknamed it the Cohen Tax because he was spending so much money on the Mets. But putting money into the Mets was only part of the equation.
When did these Point72 employees start moonlighting for the Mets?

Juliet Chung: Pretty soon after Steve bought the team. And it’s grown over time as Steve has invested more and more into the Mets, particularly its data analytics capabilities.

Ryan Knutson: And do you know how that came about? I mean, was he… How did that even start? Did an employee come to him and say, “I want to do this.” Did he say, “Hey, you’re really good at pitching. Do you want to go and play for the Mets?”

Juliet Chung: So from what I understand, some of the employees volunteered.

Ryan Knutson: Like Point72’s chief technology officer. He oversees a staff of hundreds.

Juliet Chung: He’s also a longtime Mets fan and season pass holder. So when Steve bought the team, he really quickly put up his hand and said, “I’d love to be involved. How can I help?”

Ryan Knutson: The CTO isn’t the only high-ranking executive moonlighting for the Mets. There’s also the chief financial officer and the head of HR. Have you ever heard of a team owner doing anything like this, where he’s having his employees moonlight for the sports team?

Juliet Chung: So apparently in baseball, it may not be that unusual for baseball teams to have some crossover between the organizations of their owners primary firms. But if you look at it from the world of hedge funds, this is a pretty unusual setup, especially to have senior employees at a hedge fund also working at a Major League team.

Ryan Knutson: Point72 says none of its clients are paying for the work on the Mets and that none of the hedge funds portfolio managers or analysts work for the team. And according to his chief of staff, Cohen hasn’t missed a day of trading since he bought the Mets and he continues to work seven days a week. And even though some investors pulled their money out of Point72 when Cohen bought the team, most investors have stuck around. In fact, Juliet says this could actually give Point72 an advantage in the hedge fund world.

Juliet Chung: You know, especially right now, the war for talent is pretty intense at stock-picking hedge funds. And I could see this being sort of a carrot both to attract talent and to help long-tenured employees sort of be excited about their jobs. I mean, this is a pretty cool perk if you’re interested in baseball. I get to not only work at Point72, but also help out the Mets.

Ryan Knutson: It’s not just high-ranking executives that are getting to help out the Mets.

Juliet Chung: I think what may be the most interesting aspect is just all these data people who are working for both firms.

Ryan Knutson: And what is it that they do exactly?

Juliet Chung: That’s a really good question. We’ve asked the question in a lot of different ways. And I think there’s a reluctance to reveal too much about what they’re doing because the teams are supposed to be pretty competitive about what they do and don’t want to let their secrets out of the bag.

Ryan Knutson: But Juliet and Jared were able to figure out what some of these people are doing. That’s after the break.
People have been using data to get ahead in baseball for a long time. Remember Moneyball?

Brad Pitt: There are rich teams and there are poor teams. Then there’s 50 feet of crap. And then there’s us. Welcome to opening.

Ryan Knutson: It was a book that got turned into a movie in 2011. It starred Brad Pitt and Jonah Hill.

Brad Pitt: We’re going to shake things up. Why don’t you walk me through the board?

Jonah Hill: I believe there’s a championship team that we could afford because everyone else undervalues them like an island of misfit toys.

Ryan Knutson: Moneyball was based on the real-life story of the Oakland A’s. Back in 2002, they were the first team in baseball to lean heavily on data analytics. For instance, they used data to try and find inexpensive players that were really good at getting on base. These days, Jared says most teams use data like this.

Jared Diamond: The concept of Moneyball generally, it’s almost sort of, it’s ubiquitous, right? The A’s were pioneers, the Moneyball A’s because they were using data and data analytics at a time when nobody else was. That’s no longer the case. Every team uses data now, everyone. Everybody in baseball is doing things far, far, far, far beyond anything that was happening with the Moneyball A’s.

Ryan Knutson: Why is that helpful in baseball?

Jared Diamond: If you think about baseball ultimately compared to sort of other sports, baseball, yes, it is a team game, but it’s also in some ways just a game of numbers, more so than any other sport. What baseball really is is a series of individual one-on-one matchups. It’s the pitcher facing the batter and then the pitcher facing the next batter and then the next batter, which means that essentially it’s just about odds. What are the odds that this pitcher will get this hitter out? What is the odds that this hitter will get a hit off of this pitcher? And there are so much data out there to collect. And if you sort of play the numbers correctly, more often than not, you’re going to win games.

Ryan Knutson: This is what the Mets are doing, but they’re going a step further. Since Cohen took over the team, he’s quadrupled the size of its data analytics department.

Jared Diamond: They now have the most cutting-edge technology in the sport. And they have all of these people from Point72, this incredibly sophisticated high-tech hedge fund, now doing work on the baseball operation and building systems and building technologies that allow the Mets to capture even more data than their peers. What’s fascinating about the Mets is not only do they sort of have a very robust data analytics department, they also have money. So you can think of it sort of as Moneyball with money.

Ryan Knutson: So is it going to work? Are the New York Mets going to win the 2022 World Series?

Jared Diamond: I am not going to say on the record that the Mets are going to win the 2022 World Series, right? That is sort of the beauty of this, of baseball in some ways, right? The Oakland A’s, they have not won a World Series in the Moneyball era.

Ryan Knutson: Despite having pioneered this whole model.

Jared Diamond: Yes. And despite being very good often and being in the playoffs year after year after year. Because the A’s had smarts, but they didn’t have finances, right? It used to be for a long time that you could sort of divide baseball teams into two categories. You had teams that were rich and teams that were smart, right? Because the rich teams didn’t have to be smart, and the smart teams had to figure out a way to succeed because they weren’t rich. Well now, that’s no longer the case, where a lot of the rich teams are also smart. And now, the Mets are in that category as well, which great for the Mets, very scary for some of those small-market teams that try to sort of outsmart everybody. It’s a lot harder to outsmart a team like the Mets now.

Ryan Knutson: Should we be rooting for this to succeed, or does it just mean that we’re kind of rooting for just more money to be flowing into the sport of baseball?

Jared Diamond: I think everyone who’s not a Mets fan right now is very much rooting against the Mets. Fans don’t like the notion that you could just buy your way to a championship. But there’s also this sort of larger question about sort of taking the humanity out of the game, right? Where baseball is supposed to be this sort of romantic, charming pastime. It evokes images of summer and childhood and freedom and green grass and blue skies and popcorn, peanuts, and Cracker Jacks. The reality is though, it’s not that. It is big business. And Steve Cohen with his money and his hedge fund going in there and sort of turning the Mets into a big computer, it’s sort of a stark reminder that baseball isn’t that charming thing that we would like it to be.

Ryan Knutson: Last year, it was the first season Cohen had full control of the Mets, and the team didn’t make the playoffs. This year, the Mets are considered real contenders for the World Series, which Jared says will be the ultimate test for whether Cohen’s experiment pays off.

Jared Diamond: When you spend as much money as he’s spending, you want to see results, and results in his mind is going to be a World Series championship, right? So no matter what Steve Cohen does, no matter how much money he spends, if it does not result in a World Series, it will be perceived as him having failed. And that’s just how it works in sports, fairly or unfairly. What I could say is the Mets are certainly in a good position to have a chance to win a World Series.

Ryan Knutson: So what you’re saying is maybe not 2022, but 2023 definitely?

Jared Diamond: Yeah. What I’m saying is if you’re a Mets fan and you would like to see the team finally win a World Series for the first time since 1986, so there’s many, many Mets fans who have never seen it in their lives, they I think should be confident that it will happen sooner rather than later.

Ryan Knutson: That’s all for today, Monday, May 23rd. The Journal is a co-production of Gimlet and The Wall Street Journal. If you like the show, follow us on Spotify or wherever you get your podcasts. We’re out every weekday afternoon. Thanks for listening. See you tomorrow.

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