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Skybridge trader defends Steve Cohen


valueorama
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For one, he's not really putting his career at risk since he is one of the founding partners of Skybridge Capital. They're a fund of funds with over 8 billion in AUM, so he should be pretty set financially.

 

In terms of why he would so brazenly defend SAC-- while there the risk that he is wrong and potentially "looks stupid", the fund of funds business is highly relationship based, and being close with Steven Cohen can certainly help Skybridge get access to some of the SAC spin off funds, and other difficult to access hedge funds.

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Aha Munger strikes again. You have to look at incentives!

 

I thought Skybridge was just  a hedge fund. Fund of funds will never say bad things. Just like investment bank research analyst dont put a sell rating on a company going to BK..

 

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Aha Munger strikes again. You have to look at incentives!

 

I thought Skybridge was just  a hedge fund. Fund of funds will never say bad things. Just like investment bank research analyst dont put a sell rating on a company going to BK..

 

They won't say bad things...they just pull their money every time they get nervous!  ;D  Cheers!

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He also throws lavish parties for investors with loads of entertainment. His clients, I believe, are mostly retail/HNW individuals. Cohen has spoken at some of the conferences and is probably a big draw. The guy is a salesman first and judging by his AUM, a pretty good one at that.

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What I found amazing about reading about hedge funds such as SAC and the former Galleon Fund (I read The Billionaire's Apprentice about  Rajat Gupta,  and The Buy Side:A Wall Street Trader's Tale of Spectacular Excess, written by a trader who worked at Galleon) g-was the amount of day-trading going on.  Didn't these guys ever invest long-term, or even medium-term?  From these books it seemed to be constantly in-and-out trading - sort of the opposite of value investing.  Yet the managers became billionaires (at least partially by cheating :)  Don't any of these hedge funds buy and hold?  Do they even read Buffett or Graham (they seem to profess to publically, at least)?

 

http://books.google.com/books?id=viwraQS5hHoC&printsec=frontcover&dq=galleon+fund&hl=en&sa=X&ei=a-_qUZ_NKciaiALgjIHwAg&ved=0CE0Q6AEwBDgK

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It took under 5 days to put Bear Sterns under, & it was because nobody had any confidence that Bear could make good on its short term paper as it came due (counterparty risk) - starting a liquidity run. SAC is not going to be able to roll all its short-term paper, it is going to rapidly suck the liquidity out of them & their satellites, & they are going to have to sell what they can for whatever they can get. You have to think that the only real bulk buyer for a lot of their illiquid holdings is the Fed  ... & it is going to come with legal strings attached.

 

Mother of a bear raid!

 

SD

 

 

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It took under 5 days to put Bear Sterns under, & it was because nobody had any confidence that Bear could make good on its short term paper as it came due (counterparty risk) - starting a liquidity run. SAC is not going to be able to roll all its short-term paper, it is going to rapidly suck the liquidity out of them & their satellites, & they are going to have to sell what they can for whatever they can get. You have to think that the only real bulk buyer for a lot of their illiquid holdings is the Fed  ... & it is going to come with legal strings attached.

 

Mother of a bear raid!

 

SD

 

Can't tell if that is sarcasm or not, but in case it's not, SAC doesn't really trade illiquid holdings. They often own significant chunks (>5%) of stock in large companies, but this is in no way comparable to a Bears Stearns event. Bears' assets were illiquid, leveraged, and there were not enough buyers of the esoteric securities they were trying to get rid of. In the worst case scenario where SAC had to liquidate in a short time frame, they are doing so with the markets at peak levels and they trade mostly common stocks which are highly liquid. On top of that, they are not too leveraged, especially compared to banks and other hedge funds.

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It took under 5 days to put Bear Sterns under, & it was because nobody had any confidence that Bear could make good on its short term paper as it came due (counterparty risk) - starting a liquidity run. SAC is not going to be able to roll all its short-term paper, it is going to rapidly suck the liquidity out of them & their satellites, & they are going to have to sell what they can for whatever they can get. You have to think that the only real bulk buyer for a lot of their illiquid holdings is the Fed  ... & it is going to come with legal strings attached.

 

Mother of a bear raid!

 

SD

 

 

According to that article i linked, rumor has it that SAC is sitting on $6 BB of cash. All depends on how fast clients withdraw. Lot depends of how the lockout agreements are worded.

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It is sarcasm, but keep in mind that the 6B is just window dressing; no different to the old time banking trick of putting a stack of gold bars behind the window for all to see (when there is a crisis), & surrounding it with security guards. With all that gold on show the bank must be safe!  .... or is it more likely to be the get your demands in quick boys, before the money is all gone -  they've only got 6B!

 

If SAC is your counterparty you're going to demand DAP delivery on every trade, you're not going to do net settlements, & you're not going to grant any intra-day margin. A financial institution is prohibited from doing business (extending credit) with alleged criminal organizations. & it cannot be sure that it will be repaid any credit that it may have to extend against collateral.  You cant do this business if you cant get credit, & no one comes back from a liquidity run.

 

If you suspect SAC is on the other side of your bloc trade you're going to want a liquidity discount for your bid. In the option & future markets you would punt against, & push them. As the carney barker says  ..... come one, come all, 2 bucks a ball - winner takes the prize!

 

SAC is a lot more brittle that it makes out.

 

 

 

 

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What I found amazing about reading about hedge funds such as SAC and the former Galleon Fund (I read The Billionaire's Apprentice about  Rajat Gupta,  and The Buy Side:A Wall Street Trader's Tale of Spectacular Excess, written by a trader who worked at Galleon) g-was the amount of day-trading going on.  Didn't these guys ever invest long-term, or even medium-term?  From these books it seemed to be constantly in-and-out trading - sort of the opposite of value investing.  Yet the managers became billionaires (at least partially by cheating :)  Don't any of these hedge funds buy and hold?  Do they even read Buffett or Graham (they seem to profess to publically, at least)?

 

http://books.google.com/books?id=viwraQS5hHoC&printsec=frontcover&dq=galleon+fund&hl=en&sa=X&ei=a-_qUZ_NKciaiALgjIHwAg&ved=0CE0Q6AEwBDgK

 

If we forget for a second that it is illegal and unethical -- if 10% of the time I knew with 100% certainty what was going to happen next week with earnings/drug trial results/etc. I wouldn't be employing a value investing strategy either.

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You have to wonder what kind of deal was cut for the kind words. Then add in that Goldman may well be SAC's dominant  (or only?) counterparty right now, & they cannot be thrilled at the possible regime change should SAC go under. Yet we still get this announcement, that this alleged criminal organization is a great counterparty?

 

But if you had had a conversation with the fed, & reached an understanding ... wouldn't this then be a reasonable outcome? And if this conversation did take place - how long can it be before SAC topples ?

 

SD

 

 

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Well gee! Out of all people in the world, who'd have thought that the group making hundreds of millions off of SAC would come and defend SAC? Isn't SAC one of the few firms remaining that trades the old fashioned way and pays a higher commission per share? If their statement says anything, it's that there's a lot of money at stake for them.

 

That Goldman's statement should carry with it any ounce of credibility is beyond my comprehension. But then again, Goldman is no stranger to doing questionable things to acquire the Almighty Dollar.

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