Unstructured Finance

Stevie Cohen: the pop star edition

Hard to believe, there was a time when Steven A. Cohen was not all that well-known on Wall Street outside of the hedge fund industry. Some even used to confuse the then-paunchy hedge fund trader with a popular magician with the same name.

But it’s true. In fact, a decade ago,  BusinessWeek (pre-Bloomberg takeover) did a cover story about Cohen and his then-$4 billion SAC Capital Advisors, calling  the once super secretive investor, “The most powerful trader on Wall Street you’ve never heard of.”

Today, however, it’s almost a rarity when a major business publication or website (that’s you Dealbreaker) doesn’t have a story about Cohen and his currently $15 billion hedge fund (subject to change depending on how much in outside investor money gets returned at the end of this month). Whether it be the long-running inside trading investigation, his failed attempt to buy the Los Angeles Dodgers, his impressive growing art collection or his sizeable charitable donations, Cohen and his firm are always making news. A few years back, we even did a story on SAC Capital’s resident golf pro and how he would line up golf outings for SAC traders with corporate executives.

But Cohen, for better or worse, has moved beyond the business pages to the popular press. And while he’s not yet fodder for People magazine or TMZ, consider just how mainstream Cohen and his embattled hedge fund empire have gone.

Last month, Vanity Fair did a big piece likening the prosecutorial hunt of Steve Cohen to Captain Ahab and the hunt for Moby Dick. It was a nice read with a great graphic illustration, in which Cohen is the great whale and Manhattan US Attorney Preet Bharara, with spear in hand, plays the part of Ahab. It’s a great image, but one we’ve seen before.  For Vanity Fair, this the second time in three years that Cohen has gotten star treatment. In that earlier story, Cohen tried to show a more warm and cuddly side. And to help further that image, Cohen and his wife Alexandra Cohen sat for a photo shoot with Annie Leibovitz, whose famous for her photo portraits of the rich and famous.

The sultans of swing

Although most investors have been pleased with the steadily rising U.S stock market over the past six months, funds that profit when markets are convulsing are licking their wounds.

With market stress at multi-year lows, volatility hedge funds returned just 1.16 percent in the first quarter, compared with 3.7 percent for the broader hedge fund group.

Some of the volatility specialists are doing better than others by capitalizing on major market moves in Japan, for example. And some are doing better simply because they are ‘short’ volatility funds – they tend to perform better when markets are calmer. But those funds are now few and far between.

Insider trading—it’s not just hedge funds

Sometimes it seems that insider trading cases are all about hedge funds. After all, the overwhelming majority of the federal government’s multi-year crackdown on insider trading has netted dozens of traders and analysts working in the $2.25 trillion hedge fund industry.

But this week’s escapades involving a former top audit partner at KPMG and his golfing buddy are reminder that the temptation to profit from inside information exists in many industries and professions.

Still, senior hedge fund reporter Svea Herbst-Bayliss reminds us in the following post,  a recent survey found a good portion of people who labor for hedge funds harbor private doubts about the integrity of their colleagues. If the numbers expressed in this survey are anything close to accurate, law enforcement should be busy for quite a while longer.

Pacino, Papandreou, Panetta, Paulson: Welcome to SALT 2013

The SkyBridge Alternatives Conference – the annual hedge fund blowout better known as SALT, is a month away. And the official agenda for the three-day bacchanal, which sees thousands of hedge fund investors, allocators and hedge fund hangers-on descend on Las Vegas in the second week of May, has been released.

Many regular SALT-goers will tell you, of course, that as the event has grown in popularity its official agenda has become but one part of the conference. A sideshow to goings-on inside the Bellagio are the unofficial meetings going on outside, in the hotel’s poolside cabanas.

But SALT gate-crashers – a growing group of people who don’t pay for tickets to the conference but rock up to the Bellagio to network poolside with SALT’s paying guests – will be disappointed to know that the cabanas are a costly and official part of the event this year. The bungalows were all scooped up by SALT organizers, according two people familiar with the plans, and offered to guests for $20,000 for duration of the conference, as part of a sponsorship package that includes branding and passes to attend the event.

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

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.

Daniel Loeb surfing to the top of the hedge fund charts again

Something must be in the water over at 399 Park Avenue, where Daniel Loeb’s hedge fund Third Point is headquartered. His Third Point Ultra fund has already gained 12.42 percent this year through the 13th of March, according to data from HSBC’s Private Bank.

The portfolio added 3.3 percent alone between March 1 and March 13. By comparison, hedge funds have returned about 4 percent year-to-date, according to HSBC.

The roughly $1.7 billion Ultra portfolio is a levered version of the firm’s flagship Offshore fund, which manages about $5.7 billion and has gained 8.5 percent over the same period.

Hedge funds stockpiled Citi, axed Apple in Q4

More research was published today showing that the honeymoon is over for American hedge fund managers and technology giant Apple. The iPhone maker was one of the top two most sold stocks by hedge funds in the fourth quarter, according to an analysis of regulatory filings by Bank of America. (The other stock was  Tyco International).

This industry-wide ditching of Apple came as AIG  replaced the iPhone maker as hedge fund land’s most loved top-10 stock holding in Q4. It was the first time Apple had been knocked out of pole position in three years. For a list of some of the big names that ditched Apple, see this story by Aaron Pressman.

Meanwhile, BofA analysts found that the top two stocks purchased by hedge funds in the three months to December were  Facebook and Citigroup. The AIG and Citi buys were part of a larger move into financials by hedge funds in the fourth quarter, the BofA Hedge Fund Monitor report showed, and away from technology companies.

One more try at the Great Refi

By Matthew Goldstein

Don’t be surprised if President Obama includes a line or two in his State of Union address this evening about the need for a plan to allow millions of struggling homeowners whose mortgages are packaged into so-called private label mortgage-backed securities to get a chance to either refinance their loans or restructure them.

The Washington Post is reporting today that mortgage refinancing may be one of the laundry list of items Obama will talk about tonight. And for several months now, investors in private mortgage-securities–deals issued by Wall Street banks and financial firms and not guaranteed by Fannie or Freddie–have been quietly bracing for the Obama administration to move forward with a new refinancing effort.

Up until now, the federal government’s main attempts at trying to help homeowners take advantage of the Federal Reserve’s efforts to keep pushing interest rates to zero has been to prod banks and mortgage servicers to refinance home loans held in so-called agency debt guaranteed by Fannie and Freddie. But programs like HAMP and HARP have provided little relief to the millions of homeowners whose loans are held in private label securities.

Hedge fund scorecard 2012: Mortgage masters win, Paulson on bottom again

Mortgage funds roared home with returns of almost 19 percent last year, trouncing all other hedge fund strategies and beating the S&P 500 stock index, which rose 13 percent.

BTG Pactual’s $245.5 million Distressed Mortgage Fund, which invests primarily in distressed non-agency Residential Mortgage-Backed Securities (RMBS), returned about 46 percent for the year, putting it at the top of HSBC Private Bank’s list of the Top 20 performing hedge funds and making it one of 2012′s best performing funds.  Bear in mind the the average hedge fund gained only 6 percent last year.

HSBC’s hedge fund platform features hundreds of funds, including many of the industry’s biggest and best known managers, and the bank releases regular performance updates throughout the year.

Stevie, SAC and that ticking redemption clock

By Matthew Goldstein and Svea Herbst-Bayliss

The WSJ is out today with a big story saying Stevie Cohen and SAC Capital are bracing for up to $1 billion in redemptions, or roughly 16 percent of the $6.3 billion it manages for outside investors. That’s a lot of money but sources are telling us redemptions will likely come in lower than that—think more in the $500 million range.

And more important, no matter what the figure is, don’t look for it to put much crimp in Cohen’s operation.

The deadline for submitting redemptions is Feb. 15, so there is still plenty of time for outside investors make a decision about sticking around or leaving. And even if an investor puts in a redemption notice now, those requests to withdraw money can get pulled at the last minute if the investor has a change of heart.

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