Why do we think people with common sense (rare, we know) in Frankfort should have been running away from SAC Capital and Blackstone instead of pumping tens of millions into them?
Here’s a taste from Vanity Fair:
Then came the formation of SAC at the dawn of the hedge-fund age, in 1992, its returns so enormous Cohen could demand as much as double the industry average 1.5 percent management fee and take 50 percent of investment gains, as opposed to the usual 20 percent. The jaw-dropping 70 percent returns he piled up riding the high-tech wave of 1998–99, then the even more mind-boggling 70 percent he earned betting against the very same stocks in 2000, inspired BusinessWeek to crown him “The Most Powerful Trader on Wall Street You’ve Never Heard Of.”
Cohen never wanted the attention, even after buying his Greenwich mansion and moving SAC into its new brick-and-glass headquarters on Long Island Sound. Taking a page from Milken’s book, he bought the copyright to photographs of himself—so the press couldn’t run them. He dodged reporters for years, until SAC’s name began popping up in stories about this new insider-trading investigation, at which point, in 2010, he sat for a series of exclusive interviews with Vanity Fair. “I feel like Don Quixote fighting windmills,” he groused. “There’s a perception, and I’m trying to fight that perception. I find it offensive that they lump SAC into these articles. I really do. The press, I mean, they don’t understand what the hell—they don’t understand what they’re writing about.”
Yet even Cohen would admit that this “perception”—that SAC had to be doing something illegal to make such astounding returns—had been around for a while. In the 1990s, SAC earned a reputation for pumping brokerages for advance notice of analyst recommendations, a rumor that was never proved. In the early 2000s it was known as a fund that hoovered up all available information on every conceivable stock, to the point where some of it crossed the line into illegal insider information, another suspicion that was never proved. In response Cohen beefed up SAC’s compliance department (its internal police) and began hiring a new breed of trader.
It’s why Kentucky can’t have nice things.