Funds with SAC-like structures abound


According to the WSJ, prosecutors are considering bringing a case against SAC Capital founder Steven Cohen based on a "willful blindness" theory. The idea is that if Cohen strove to give himself plausible deniability by simply remaining blind to possible criminal acts at his firm, then he could be charged. The paper provides an unflattering analogy: A drug courier who consciously does not try to determine the content of what's being delivered.

The article suggests that the structure of the firm is interesting in that it relies on something of a spoke-and-hub structure, in which Cohen sits in the middle and takes advice that's filtered from various funds or teams set up by the firm. There are said to be multiple layers between the sources of trading ideas and Cohen himself, making it less likely perhaps that he'll know the nitty-gritty of the origins of some trade ideas.

How unique is this structure in the industry?

Reuters notes that a handful of firms operate on a similar structure in that the firms allocate money to several funds or portfolio teams within their structure. "Large hedge-fund firms structured like SAC, where Cohen allocates capital to dozens of portfolio teams that trade mainly in stocks, stand to benefit most from the ongoing insider trading probe." The article names Millennium Management, "which has long had a rivalry with SAC," Balyasny Asset Management, Visium Asset Management, Citadel, and Hutchin Hill.

To be sure, these funds have been untouched by the insider trading scandal. Millennium, however, paid $180 million in 2005 to settle charges of improper mutual-fund trading. "It now has what some insiders are calling some of the toughest compliance requirements in the industry."

All in all, it would be unwise to assume that fund firms of this ilk all operate like SAC Capital, which was thoroughly dominated by a single personality and is perhaps seen by prosecutors as unique.  

For more:
- here's the Reuters article  
- here's the WSJ article