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Today's Top News1. Investors may exit Cohen's funds
Steven Cohen's stature in the hedge fund industry remains immense, if a bit tarnished. He has suffered a lot of blemishes to his reputation over the past few years, courtesy of the insider trading scandals that have swirled around him and his firm, SAC Capital, though neither has ever been charged. One big issue right now is the extent to which his investors will get antsy and decide to sever ties. Most have been very happy with him over the years. He's generated positive returns just about every year since the early 1990s, and that has empowered him to charge a whopping 50 percent in performance fees. If investors decamp, it will not be for performance reasons. A rather ominous sign is that a hedge manager told CNBC, "that because of concerns among some of his own investors, he planned to pull his company's entire investment from SAC — a dramatic move that normally takes place only in cases of extreme market turbulence or reputational damage to a firm…The fund of funds manager…that he was making the move reluctantly, even saying that he was 'sick' over the decision because SAC had generated such positive returns in recent years. He also said the size of his investment at SAC was in the tens of millions — a 'rounding error' given the size of SAC's $14 billion in assets under management." I doubt that investors will head to the door en masse, but you can bet that this is an issue that limited partners will be scratching their heads over. SAC has moved to limit the fallout by reaching out to the largest clients. For now they seem to be willing to stay on board, but an indictment is ever handed down, all bets are off. For more: Related articles:
Read more about: insider trading, SAC Capital
2. A female employee's perspective of Goldman Sachs
In the 1990s, aspiring novelist Marie Myung-Ok Lee worked as an editor in the Goldman Sachs research shop, editing analysts reports. "We were cogs in the wheels of Goldman's award-winning research department," she writes in an essay in The Atlantic about gender relations at the bank. The essay will no doubt make the PR folks at the bank cringe, just when they thought they had turned the corner to more favorable press coverage. She's not likely to land a Greg Smith-like contract out of this, but she offers an interesting perspective, a view from the non-revenue generating service economy at the firm. "When I used to get together with friends to discuss our jobs, the reaction to mine was always something akin to 'It sounds like a frat on steroids.' In one Goldman office, in the memos announcing a new crop of incoming female associates, instead of the usual corporate headshot, some joker used different semi-nude pictures of Playboy playmates. It was clearly thought to be clever, instead of puerile and wrong, but when I made noise about it, I was chided by a coworker for being 'humorless' and that I probably read Ms. Magazine (I did)." I'll spare you the many details, which are not all together shocking and new. But she raises the big issue of why a woman in this day and age want to work in such an environment. "In 1999, not terribly long after I'd left, the firm went public, which was a jackpot for the employees, even down to the lowly editors. That could have been worth an NEA fellowship or two. People always ask me, did I regret leaving? Had I known, would I have toughed it out?" In the end, it's all about the money. How much is enough to tolerate an environment you hate? For more: Read more about: Goldman Sachs, gender bias 3. Could prosecutors indict Steven Cohen?
The government would appear to be in quite a predicament regarding SAC Capital founder Steven Cohen, who has been in the government's cross hairs for years. An ideal opportunity to prosecute him for insider trading presented itself in the form of the drug stock trades that generated $276 million for his firm. But the case depends on the cooperation of Mathew Martoma, who was just indicted. My sense is that any negotiations with Martoma becoming a witness have ended, which has prompted the government to play hard ball. The choice was always between cooperation and leniency on one hand and harsh treatment and a potentially long prison sentence on the other hand. Martoma has apparently decided to take his chances. While the government's insider trading case appears to be weak without Martoma, Reuters raises the possibility that the SEC might go after Cohen on failure to supervise charges, arguing that he should have been a better overseer of trading to prevent illicit activity. That would be a massive comedown for the government, but it may be the only option. Prosecutors do not want to run the risk being seen as complete failures, after expectations have been pushed so high. For more: Related articles: Read more about: SAC Capital 4. SAC's "ruthless", "pressure packed" culture
So what's it like to work at SAC Capital? For some, it might be the pinnacle of success, a chance to work at a top performing hedge fund where the potential rewards are tops in the industry. On the other hand, the downsides are scary. DealBook describes SAC as a "high-stress, pressure-packed culture" and "a ruthless place where those who helped Mr. Cohen make money would earn fortunes, while laggards could be fired abruptly, even for a single wrong-way trade." For some analysts at "an information-driven hedge fund like SAC, the temptation to exploit the expert-network relationship was immense." That is precisely what proved to be the downfall of Mathew Martoma, who worked closely a neurology professor at the University of Michigan and a specialist in Alzheimer's disease who also "moonlighted as a consultant for Gerson Lehrman." The professor was shockingly open with confidential information and soon ended up on the radar of investigators. He has agreed to testify for the government, and will no doubt prove to be a top witness if Martoma case ever goes to trial. In the end, Martoma was fired from SAC, labeled a one-trick pony for the incredible trades that generated so much for himself and for Cohen. One might think that his rough treatment at the end of his SAC Capital stint would incent Martoma to testify against Cohen. But that doesn't appear to be the case. Most likely, he fears Cohen more than he fears the prospect of going to jail for a very long time. For more: Related articles: Read more about: insider trading, SAC Capital 5. Knight Capital on the chopping block
In the modern world of computer-driven trading, small mistakes can have magnificent consequences. A great example is Knight Capital. The company recently suffered a software bug in the code that was designed to connect the market maker to the New York Stock Exchange's Retail Liquidity Platform. The glitch resulted in $440 million in losses in less than an hour. The firm tried to persuade regulators to cancel the trades, but had no luck. The big error forced the firm to seek a capital injection, which it received in the form of a big equity investment from six other market-making firms. Some thought that was the end of the story, but that final chapters are now being written. Bloomberg reports that Knight Capital is entertaining acquisition proposals. Bids are due this week. "An acquisition would end Knight's independence following more than a decade in which Chief Executive Officer Thomas Joyce built it into one of the biggest market makers, executing about 10 percent of U.S. share volume. Joyce sent an e-mail to employees over the weekend saying capital levels are strong and no deal will be done unless it makes sense for the company," the article reports. The firm's wholesale business, which has locked up a lot of retail order flow, will no doubt prove attractive to many firms. Getco and Virtu have been raised as obviously interested parties. Some of the powerhouse investment banks may also take a look. For more: Related articles:
Read more about: Market Maker, deals Also Noted
SPOTLIGHT ON... Linda Schapiro to resign as SEC head The chairmanship of the Securities and Exchange Commission ranks as one of the toughest jobs in government. The commission is sprawling yet understaffed in critical enforcement areas, and the constant object of political warfare. Few have succeeded in the job to their personal standards. Mary Schapiro steps down to mixed reviews, which is about as well as anyone could've done. New York Times notes that, she "quickly gained a reputation as a consensus builder determined to repair the agency's reputation. A tireless preparer and self-described pragmatist, Ms. Schapiro overhauled the agency's management ranks, revived the enforcement unit and secured more money and technology at a time when other agencies were being asked to cut back." Article Company News:
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Tuesday, November 27, 2012
| 11.27.12 | Investors may exit Cohen's funds
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