Cutthroat Cohen stares at demise for being soft on supervision

Scrolling Ticker

SAC’s red-brick headquarters are in Stamford, on the other side of Long Island Sound from where its founder grew up. Its lobby and corridors are lined with Cohen’s extensive art collection, while a scrolling electronic stock ticker wraps the walls of the hush-tone trading floor. There, he and his fleece- clad traders buy and sell hundreds of millions of dollars of shares a day, generating lucrative commissions for Wall Street’s brokerages. Cohen likes to keep his trading room cold to stay alert.

SAC -- an acronym of its founder’s name -- boasts an ultra- Darwinian structure rare in the $2 trillion hedge-fund industry, one which a former employee described as shark tanks within a shark tank.

The competition at the firm exists on three levels.

Competing Teams

SAC’s 130 teams of portfolio managers and their analysts vie for the firm’s roughly $45 billion in assets, including borrowed money. Less than 10 percent of the teams manage more than $1 billion, and the average ranges from $200 million to $550 million. Most of SAC’s teams trade stocks, although a few focus on macro-economic and quantitative trading.

More unusual in the industry is that at SAC multiple groups compete against each other by trading in the same industries. There are 12 teams trading technology and 11 handling health care. Senior portfolio managers can measure their performance against internal rivals throughout the day because all profits and losses can be seen in real time. Technology and health-care stocks tend to move dramatically on news about earnings, new products and drug trials, and most of the former SAC employees entangled in the government’s insider-trading probe traded these two industries.

Cohen’s Attention

The biggest difference between SAC and its rivals is that each of its 350 investment professionals also battle to get Cohen’s attention, as Martoma and the health-care analysts did in 2008, in the hopes that their best ideas will be picked by Cohen for the portfolio he personally manages, known as the Cohen Account. They are paid handsomely for their winning trades -- Martoma earned a $9.3 million bonus in 2008 for his Elan and Wyeth investments.

Cohen doesn’t tolerate losing trades and will cut money from a manager whose portfolio declines 5 percent from its peak. Drop 10 percent and you are shown the exit, according to marketing documents.

He generally holds trades for six days to 20 days, and he constantly looks for the catalyst that will send shares soaring or tumbling. In addition to the Cohen Account, SAC magnifies its profits by using an algorithm to track and mimic the trades of its best-performing portfolio managers, adding even more money to their stock picks.

The environment at SAC can be harsh, according to former employees. Cohen is known to belittle employees who don’t meet his standards.

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