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What We Know About Trading at SAC Capital

SAC Capital's Cohen

Photograph by Ronda Churchill/Bloomberg

SAC Capital's Cohen

The investigation into insider trading that circles 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 who work for SAC that Cohen is confident 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 among portfolio managers.

Sundays are important days 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 adds.

There is a director of research at the firm one can bounce ideas off—the position is currently occupied by Perry Boyle, who has been with SAC since 2004—but Cohen generally likes to hear any ideas himself. 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 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 puts 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.

Kolhatkar is a features editor and national correspondent for Bloomberg Businessweek. Follow her on Twitter @Sheelahk.

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