As SAC Capital gets ready to meet its long awaited nemesis in the form of a federal grand jury, it's becoming clear that the company has always been a bit of a strange place to work.
Hedge funds can often be unusual employers, but SAC seems to have been more unusual than most. Based upon the text of the grand jury indictment and an excellent Bloomberg portrait of Stevie Cohen from 2010, this is what made SAC an 'eccentric' employer.
Most hedge funds cohere around an important figure. At Brevan Howard, it's Alan Howard. At Odey Asset Management, it's Crispin Odey. At Bridgewater Associates it's Ray Dalio. And at SAC Capital, it's Stevie Cohen.
While most hedge funds have a figurehead, however, at SAC Cohen seems to have deliberately created a culture which both formalized and accentuated his preeminence.
The indictment says that there were over 100 portfolios under management at SAC, but the largest of them all was always, without fail, a portfolio run by Cohen himself.
Cohen wasn't happy to run this portfolio alone, however. As well as running their own more diminutive portfolio, SAC employees were absolutely required to tell Cohen their best 'high conviction' trading ideas. They had to do this directly (rather than sharing their ideas with other colleagues too), and the need to do so was so important that it was even expressed during the hiring process. Moreover, the amount of money that an SAC employee could make from giving a trading idea to Cohen could exceed the amount of money they made from trading their own portfolios.
Despite all the help that Cohen seems to have received from his minions in the form of trading ideas, the indictment also states that he had 'sole trading discretion over his portfolio.' In other words, Cohen seems to have had the best of both worlds - the best ideas from everyone who worked for him, and absolute control over their implementation.
In theory, organizations are supposed to foster open, sharing cultures, where everyone is working towards the same goal. The indictment suggests this wasn't the case at SAC Capital. At SAC, one team seems to have been pitted against another and the emphasis seems to have been on making Stevie Cohen look as good as possible.
In 2010, Bloomberg noted that there was 'heated competition' among portfolio managers at SAC Capital and that the company often had multiple teams covering the same stocks and industries (for example it had 13 teams covering healthcare stocks in 2009).
The indictment seems to confirm this. The SAC hedge fund functioned as a "collection of dozens of individual portfolios," each of which was, "in many ways autonomous from from each other."
Any collegiality at SAC Capital therefore seems to have been between individual funds and Cohen, rather than between individual funds covering the same sector. "Each SAC portfolio manager was compensated principally based on the performance of his or her own portfolio, and without regard to the investment performance of other SAC PMs," says the indictment.
Despite having mandated that individuals share their very best trading ideas with him, Cohen seems to have been worried that they might not do so. To ensure sharing really happened, the indictment also claims that Cohen employed sector-focused 'research traders' to ensure that top trading ideas were shared with him. To make doubly certain that the sharing was happening, the indictment says these research traders also monitored portfolio managers' trades to make sure they weren't holding anything back from Stevie.
On Sunday evening, traders might want to relax and get ready for the week ahead. For traders at SAC, Sunday evenings were often about talking to Stevie.
In 2010 Bloomberg claimed that Stevie Cohen ran a semi-regular four hour Sunday night conference call for his portfolio managers and analysts. Once again, this was to discuss their trading ideas. One analyst told Bloomberg she quit SAC after working every weekend one summer.
In the indictment, it's claimed that Cohen regularly communicated with employees 'to ascertain their best trading ideas,' and that this included semi-regular Sunday evening calls.
The indictment suggests that SAC Capital wasn't a fund full of excellent traders, but rather a fund full of people who knew people. It says the first stage of SAC’s hiring process was handled by the SAC “business development” department and that the emphasis was on 'hiring personnel with company contacts in their respective sectors.'
SAC Capital seems to have been a place of silence. Trader and journalist James Altucher says no one spoke to Stevie Cohen as he walked through SAC's offices with Cohen. And Bloomberg says Cohen didn't like noise, therefore the phones at SAC didn't ring - they just flashed.
Cohen was in charge of the temperature at SAC. He reportedly maintained the temperature on the trading floor at 69 degrees Fahrenheit (21 degrees Celsius) to make sure no one fell asleep.
Poor job security is the case at most hedge funds - Brevan Howard, for example is notorious for dumping managers who make a loss. At SAC, portfolio managers’ contracts reportedly had “down-and-out” clauses: if a manager loses 5% from his/her peak asset value, SAC could take away half of the assets remaining. If a manager lost 10% from peak asset value, he or she would often be out.
Job security seems to have been made worse at SAC Capital by the fact that contracts were short, lasting only two to three years. Contracts were only renewed if managers met their targets, said Bloomberg.