Steinberg indictment sheds some light on SAC’s computer program that once annoyed some top traders

April 1, 2013

By Matthew Goldstein

SAC Select may not have been one of SAC Capital Advisors’ best-known portfolios during its brief trading history. But the computer-driven trading program may have been one of the more controversial at Steven A. Cohen’s hedge fund.

Setup by a number of SAC Capital’s algo- savvy traders, including Neil Chriss, who left SAC in 2007 to found Hutchin Hill Capital, SAC Select was designed to piggyback on the trades on some of the hedge fund’s top portfolio managers. SAC Select, which at its peak in 2008 managed about $4.2 billion in hedge fund assets, was discontinued sometime in 2009 or early 2010. The strategy was intended as an added investment benefit for long-time SAC Capital clients.

But SAC Select was always controversial within Cohen’s empire because portfolio managers essentially viewed it as a platform simply copying some of their best ideas, say several people familiar with the strategy. Two people familiar with it said it “pissed off” the human traders at SAC.  Cohen is said to have countered that the computer program was not much different then PMs at SAC being regularly required to share their best “high conviction” trading ideas with Cohen each week.

Internally, some referred to SAC Select as SAC’s own ETF (exchange traded fund) because it offered exposure to the best ideas of some 15 top portfolio managers. Still, it’s not clear just how successful SAC Select ever was–performance numbers for the strategy could not be obtained. For many at SAC Capital the strategy was dismissed as an interesting but discontinued experiment.

But on Friday SAC Select resurfaced. The computer-driven portfolio is mentioned in both the Securities and Exchange Commission civil complaint against Michael Steinberg, the 16-year-veteran of Cohen’s fund who is the latest to be charged by federal prosecutors and regulators with using inside information. The SEC alleges that based on some of the same inside information Steinberg used to make a timely placed trade in shares and options of Dell, the SAC Select platform made similar trades.

Here is the SEC complaint, which makes reference to former SAC Capital analyst Jon Horvath, who has pleaded guilty and agreed to cooperate in the case against Steinberg and another portfolio manager:

Shortly after receiving the information from Horvath, Steinberg and Portfolio Manager B executed trades in Dell securities on behalf of the Sigma Capital Fund. As a result of Steinberg and Portfolio Manager B’s trading, the S.A.C. Select Fund, a hedge fund managed by a Sigma Capital affiliate, executed similar trades in the securities of Dell in August 2008.

It’ s not quite a starring role for SAC Select. But it’s another intriguing footnote in the long investigation of Cohen’s more than two-decade old fund, which still remains of the hedge fund industry’s most successful.

 

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