The investigation into insider trading circling around SAC Capital is moving billionaire hedge fund manager Steven Cohen to attempt to shore up morale.
Cohen and his top lieutenants have been trying to calm SAC employees, telling analysts and traders working for SAC that Cohen is confident that he has done nothing wrong, according to a person familiar with the matter who is not authorized to speak publicly about the case. SAC received a Wells Notice from the Securities and Exchange Commission in November, but no charges have been filed against Cohen.
Nonetheless, the atmosphere in the firm’s offices—hardly a bastion of good cheer, even under the best of circumstances—is described as tense, with the intimidating Cohen even more intimidating than usual.
Here are a few things we know about what it’s like to work and trade at SAC Capital:
The firm is intensely competitive, with more than 100 portfolio managers running their own pools of money and their own research staffs, essentially in silos isolated from one another. Camaraderie and chit-chat are minimal; information flows vertically, up to Cohen, not horizontally between portfolio managers.
Sundays are an important day for Cohen and SAC; that’s when the firm’s portfolio managers typically call in to update the boss on important positions and to pitch him on trading ideas, usually after sending Cohen an IM message to find out when he’ll be free to talk, according to a former investment professional with the firm. Cohen is very hands-on and accessible, this person added.
There is a director of research at the firm one can bounce ideas off of—the position is currently occupied by Perry Boyle, who has been with SAC since 2004—but Cohen generally likes to hear ideas himself. The conversations tend to be brief, with Cohen asking whether his trader feels better or worse about something. It’s not uncommon for Cohen to blow in and out of a position in a short period of time. And if he’s not sure about the soundness of one idea, he may summon other analysts over to poke holes in the investment thesis, leading to lively—and sometimes tense–debate.
Cohen also always wants to know a portfolio manager’s conviction level in a particular trade: a rating of 9 out of 10 means Cohen might take a position in his own portfolio, according to a person familiar with the investigation.
The SAC model is to make very large bets over short time horizons with potentially huge payouts, so Cohen wants catalysts that are likely to make stocks move the right way—a future distribution deal in China, a positive earnings announcement—quickly. As the former SAC investment professional put it: Everyone is trying to get an edge.
On Dec. 17, former hedge fund managers Anthony Chiasson, a co-founder of Level Global Investors, and Todd Newman, a former portfolio manager at Diamondback Capital Management, were found guilty of securities fraud, leaving intact the government’s perfect insider trading conviction record. Both Level Global and Diamondback were founded by former SAC traders. Chiasson and Newman face up to 20 years in prison.
