Avik News Stories of Note

Sunday, February 13, 2005

Eric Mindich / Hedge Fund

Exclusive Club Ex-Trader Creates Hot Hedge Fund, And a Traffic Jam

Big Investors Clamor to Join Mr. Mindich's Operation, Despite Stringent Terms
Elsewhere, Returns Are Down
January 12, 2005; Page A1

Last spring, investors gathered in a hotel in Garden City, Long Island, one hour outside New York City, to meet hedge-fund managers looking to raise money. A throng of more than 200 people piled into one conference room and spilled into the corridor. Inside sat Eric Mindich, a 37-year-old former Goldman Sachs hotshot with no hedge-fund experience.

According to two people who were there, Mr. Mindich didn't divulge details about his trading strategy and acknowledged he hadn't managed money for several years. In a low monotone, he said those permitted to invest would have to pony up at least $5 million, pay stiff management fees, hand over 20% of investment profits and tie up their money for as long as 4½ years or pay a big penalty.

The response: Where do I sign? Two months ago, Mr. Mindich launched his fund, Eton Park Capital Management, with more than $3 billion in assets committed by investors. People in the clubby world of hedge funds think that's the largest launch on record. If Mr. Mindich hadn't turned people away, the fund could have been more than twice its current size, according to people close to the matter.

"Five years ago if you had the money to allocate, any hedge fund would take you," says David Totah, a senior analyst for Switzerland's Union Bancaire Privee Asset Management, which managed to get into Mr. Mindich's fund. "They can be picky today."

The buzz surrounding Mr. Mindich comes at a delicate moment in the hedge-fund boom. Just as big investors scrambled to get into venture-capital firms and initial public offerings in the late 1990s, big investors today are throwing money at the most promising hedge funds, even those who don't seem to be customer friendly. These lightly regulated, private investment partnerships can play the market more aggressively than mutual funds. Even conservative investors, such as pension funds and charities, have been turning to hedge funds amid doubts about the outlook for stocks and bonds.

Just as the earlier frenzies ended badly, this one is starting to show signs of fraying around the edges. A proliferation of new funds, which often target the same markets with similar strategies, is making it harder to produce the big returns for which hedge funds are famous. Their record has already started to slip. Last year, Federal Reserve Chairman Alan Greenspan said he would "not be surprised" if many funds eventually would be forced to close their doors.

Hedge funds now manage about $1 trillion, compared with about $400 billion four years ago, according to an index created by Credit Suisse First Boston and hedge-fund advisory firm Tremont Advisors. Mutual funds, by contrast, count $8 trillion in investments. There are about 8,000 hedge funds today, up from 2,500 a decade ago.

Last year, the average hedge fund gained 9.5%, according to CSFB/Tremont, after taking into account heavy management fees. That was below the 10.9% gain for the Standard & Poor's 500 Index and down from hedge-fund gains of about 13% in recent years. So many hedge funds bought the same convertible bonds that returns in that area dwindled to about 2% last year.

With all the money flowing into hedge funds, even stars like Mr. Mindich are having to come up with strategies that differ from the pack. His fund intends to spend up to 30% of its money acquiring large stakes in private companies that it may hold for years. It also wants to encourage managers with expertise in different areas to work more closely together.

Eton Park was up about 2% in November and December, its first two months of operation. While that's somewhat below the overall market, much of the firm's capital is sitting in cash, waiting to be invested.

Mr. Mindich declines to comment on Eton Park's marketing approach and its business strategy. On its success so far, he says: "We are pleased that Eton Park's multi-disciplinary, team-oriented approach seemed to resonate with potential investors...We are looking forward to working hard on behalf of our investors."

Builder's Son

Mr. Mindich grew up in the tony New York suburb of Scarsdale, the son of a home builder. He began investing modest amounts of money given to him by his grandfather. He worked at Goldman Sachs Group Inc. the summer he graduated from high school and during his time at Harvard University. He did everything from making copies to participating in strategy meetings. After graduating in 1988 with a degree in economics, he was recruited to take a job on Goldman's famed risk-arbitrage trading desk, where big bets are made on takeover stocks.

There, Mr. Mindich became part of the group schooled by Robert Rubin, who later became Goldman's chairman and Treasury secretary and now is vice chairman of Citigroup Inc. In 1994, Mr. Mindich, then 27, became the youngest partner in Goldman's history.

Running the takeover desk as the merger market slowed in the early 1990s and other risk-arbitrage departments struggled, Mr. Mindich pushed his team to scour for new opportunities such as international deals and distressed debt. He was noted for the speed of his analysis. Colleagues say Mr. Mindich would size up the market on a dime, deciding how much Goldman should bet on controversial transactions, such as a successful wager that a small U.S. company would be part of a consortium winning an Italian cellphone license. His team notched record profits in the mid-1990's even as some high-profile merger deals collapsed.

In the fall of 1997, when Asian equities and bonds crumbled, some on Goldman's trading desk were agitated. Mr. Mindich remained even-keeled, shouting out instructions to his group, recalls Jon Corzine, then Goldman's co-chairman. "Eric's the single best trader I ever worked with," says Mr. Corzine, now a Democratic Senator from New Jersey.

Mr. Mindich experienced his first miscues when he moved off the trading floor. In 2000, he was made co-chief operating officer of Goldman's equities division. He later chaired the firm's strategy committee. People close to the matter say he was one of two executives in 2000 who pushed hardest for the $7 billion purchase of Spear, Leeds & Kellogg LP, a firm that trades stocks on the floor of the New York Stock Exchange. The deal came just as the bull market was cresting. Though parts of the company have proved valuable, Goldman has pared much of Spear Leeds's operations amid challenging trading conditions. Some stock analysts fault Goldman for paying too much. The company says Spear has contributed to earnings.

Last year, Mr. Mindich decided to get out, telling friends he missed the trading action. Some at the firm say his management skills didn't match his trading prowess; others say he didn't feel close to the firm's leadership after the departures of Messrs. Corzine and Rubin. A Goldman Sachs spokesman says, "we were sorry to see him go."

Eschewing traditional hedge-fund strategies, such as the short-term trading of stocks and bonds, Mr. Mindich hatched a plan to put a chunk of his new fund in longer-term investments, even hard-to-trade private companies. He decided to focus on less-popular markets in Latin America, Eastern Europe and South Africa. And he set out to build a team with specialties in both public and private securities, from real estate to derivatives, so that they might share expertise. Many big firms are segregated by investment area.

Difficult Terms

As for his investors, Mr. Mindich set out difficult terms, requiring them to put up a minimum investment of $5 million, rather than the roughly $1 million most hedge funds require. He also insisted they keep their money in the fund for as long as 4½ years. The idea was partly to discourage less-committed investors.

Mr. Mindich and his partners promised to invest at least $50 million in their fund, according to Eton Park's offering memorandum. The group will collect management fees of 2% of the fund's assets, on the high end for the industry. With a fund of more than $3 billion, that's more than $60 million a year.

By the summer of 2004, after the Garden City meeting and other similar events, word was spreading about the fund, named after the street where Mr. Mindich grew up. Soon, investors were pulling strings to get meetings with him. That wasn't always useful. Staffers from a Swiss firm that invests in hedge funds for wealthy individuals showed up at Mr. Mindich's midtown New York office one morning, intending to hand over a check for several hundred million dollars. They were politely turned away, according to one person familiar with the matter. Mr. Mindich and his team thought the group didn't fully understand Eton Park's strategy and wouldn't be in for the long haul, this person says. A spokesman for Eton Park declines to comment.

Executives at Union Bancaire Privee Asset Management, a big Swiss hedge-fund investor, asked an intermediary to contact Mr. Mindich after he left Goldman. During an initial meeting, and three more sit-downs with Mr. Mindich and his team, the bank executives continually emphasized their interest in being a long-term investor with Mr. Mindich.

"This is clearly the one that no one wants to miss," says Ronald Richter, an investment manager at Union Bancaire. "Finding someone of this pedigree is difficult, and he's been able to make money in good markets and bad ones."

Mr. Mindich held two breakfasts at the Harvard Club in New York in August aimed exclusively at his former Goldman colleagues. The events netted tens of millions of dollars from current and retired partners, according to people familiar with the matter. Goldman Sachs Asset Management also committed several hundred million dollars on behalf of its clients. Goldman Sachs declines to comment on its investment.

Mr. Rubin says he is an investor in Eton Park, but declines to say how much he has invested. Mr. Corzine says he has a blind trust that invests his wealth. "But it damn well better" be in Mr. Mindich's fund, he says.

Harvard ponied up about $500 million, or about 2.5% of its $22 billion endowment. Mr. Mindich, a donor and fund-raiser for the university, until last year served as a director of Harvard Management Company, which oversees the university's endowment. A Harvard spokeswoman declines to comment.

Some investors took a pass on Mr. Mindich's fund because they didn't want to tie up their money for several years. Others worried the fund's size would be a hindrance. Some investments such as stocks, for example, can only absorb so much capital, forcing big funds to find an unusually large number of investment opportunities.

Eton Park "is too big for outsize returns," says Marc Freed, a principal with Lyster Watson & Co., a New York, a company that invests in hedge funds and attended the Garden City meeting.

To counter these doubts, Mr. Mindich worked to reassure investors in private meetings that the fund's huge size would be a benefit. He told them it will allow the fund to hire top people with expertise in different markets. He also said that locking up money will allow the fund to make longer-term bets.

When word leaked out that Harvard and Goldman had signed on, other institutions joined the fray, despite the lingering questions. The clamor increased, investors say, as they began to see Mr. Mindich as a safe bet, compared with the other start-up funds.

"If Harvard is giving him $500 million, you can't ignore that," says Luke Ellis, a senior executive with Financial Risk Management, a London firm that places money in hedge funds. He wouldn't say if his firm is an investor. He adds: "People assume they know what they are doing."

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com1 and Henny Sender at henny.sender@wsj.com2

That Line at the Ferrari Dealer? It's Bonus Season on Wall Street

December 28, 2004

Samantha Kleier Forbes, a 30-year-old real estate broker,
was getting ready to leave for a vacation to Florida with
her mother and sister when she got an urgent call. It was a
client who had spent the summer scouring the Upper East
Side of Manhattan for an apartment priced between $4
million and $5 million.

The client insisted on seeing more apartments that day, but
now she wanted to look in the $6 million range. Her
husband, a banker at Goldman Sachs in his late 30's, had
just received his year-end bonus.

"Normally this time of year is dead," said Ms. Forbes, a
vice president at Gumley Haft Kleier, a residential real
estate brokerage. But this winter there is unusual buying
interest that she attributes to rich Wall Street bonuses.
She is cutting her end-of-the-year vacation short, so she
can prepare for an onslaught of clients eager to see

The year-end bonus is a Wall Street tradition, and for a
second consecutive year, the amounts are significant. Three
major Wall Street firms - Goldman Sachs, Lehman Brothers
and Bear Stearns - have reported record profits for the
year and all are said to have given out handsome bonuses.

The totals in 2003 were already impressive: Lloyd S.
Blankfein, the president and chief operating officer of
Goldman Sachs made $20.1 million, of that only $600,000 was
salary; and E. Stanley O'Neal, the chief executive of
Merrill Lynch, received a bonus of $13.5 million and
restricted stock worth $11.2 million on top of his $500,000
salary. At the other end of the compensation spectrum, an
investment banking analyst right out of college would have
made a $65,000 salary and a $35,000 bonus last year. An
associate just out of business school might have made
$85,000 in salary and a $115,000 bonus.

This year, investment bankers are expected to see gains in
bonuses of 10 to 15 percent, amid a year-end flurry of
mergers. Fixed-income traders, who have been the best
compensated Wall Street professionals in recent years, will
also be amply rewarded, but their percentage gains may be
smaller than those of bankers. Bonuses, of course, vary by
bank, by division and by individual. They reflect the
firm's profitability and the group's performance, as well
as the individual's contribution.

This year's bonuses do not quite reach the heights touched
by star bankers and traders in the heyday of the late
1990's technology bubble. But they are rich enough to
persuade many of Wall Street's elite to rediscover
conspicuous consumption.

One senior trader is building a sports complex for
triathlon training at his house in upstate New York. It
will include a swim-in-place lap pool, a climbing wall and
a fitness center. Another bought an Aston Martin. For some,
upgrading real estate is the first order of business.

But many Wall Street professionals are urging caution,
given that the bonus typically constitutes the majority of
their compensation. More than a dozen bankers, all of whom
would talk about their spending only on the condition of
anonymity, said they were all too aware that the good times
could end as quickly as they did after 2000, when a $2.5
million income could turn to $800,000 overnight.

"Given the last two to three years when people figured out
that this business is pretty volatile, they are going to
try and bank a lot of their bonuses," said one managing
director at a firm where bonuses have been announced.
"They've seen too many people laid off and they realize
they can't just spend all their money."

It should be noted that this same banker just bought a
$150,000 Aston Martin to park in his garage in Greenwich,

Another senior banker at a different firm, who is set to
receive a $2.8 million bonus, said he had bought his wife a
mink coat and was planning a weeklong skiing vacation out
West. But he also said he intended to save most of the
money. "We're not buying homes or boats, we're not spending
on the big things," he said. "We are more relaxed and
generous on the small things."

Of course, small is in the eye of the beholder. While the
Maybach, an exclusive line of luxury cars made by
Mercedes-Benz that starts at $315,000, appears on the wish
lists of many bankers, relatively less expensive models
from Aston Martin, Bentley and Maserati have also been
popular. Michael Parchment, general manager for Miller
Motorcars, a luxury dealership in Greenwich, said demand
had been soaring.

"It's probably up 20 to 30 percent from the same time
period last year," he said. "Unfortunately, production
isn't up." The result, he said, are some unhappy bankers.

Wall Street bonuses are expected to total $15.9 billion in
2004 - second only to $19.5 billion in 2000- according to
Alan G. Hevesi, the state comptroller of New York. In 2003,
bonuses totaled $15.8 billion. Mr. Hevesi said bonuses of
that magnitude were "good news for New York."

"It's all taxable income and it means that folks have more
disposable income so they will spend money," he said.

Bonus season is always a particularly angst-ridden time for
Wall Street. Managers haggle for more money for their
employees, divisions fight for a bigger piece of the pie
and bankers try to portray themselves as indispensable. In
the end, few admit to being happy, at least to their

"We used to say there's no amount of compensation that
amounts to people saying thank you," said Roy C. Smith, a
former Goldman Sachs partner who is now a professor of
finance at New York University. "They are either sullen or
mutinous, but never quite happy."

Midlevel employees did especially well this year. Three
senior-level managers at Wall Street firms said that the
people who were enjoying the biggest percentage increases
over all were second- and third-level associates and
junior-level vice presidents.

The ranks of those managers had been thinned after the
stock market bubble burst. But this year, a reinvigorated
market meant there were too few associates and managing
directors to put together client pitches. At least three
banks had to guarantee bonus increases of 25 to 50 percent
to prevent defections to other firms. The result is that a
third-year associate who might have made $200,000 in income
last year could receive $350,000 this year.

The manager with the Aston Martin said that last year's
compensation packages for associates were ridiculously low.
"You had third-year associates making $210,000 to $225,000;
a lot of these guys are married and have young kids and
they are working" very hard, he said.

Many of those associates are expected to use their new
wealth to pay off debts incurred from three years of
relatively meager bonuses.

But real estate will draw, as usual, a significant portion
of the bonuses.

"Usually we get five phone calls a week," said Richard
Steinberg, a managing director at Warburg Realty
Partnership who shows apartments priced from $10 million to
$20 million. "Since bonuses, we've gotten double that from
hedge funds, Wall Streeters and money managers. I've gotten
more phone calls since Dec. 15 than from any other year."

Late-night entertainment may also benefit from the rise in
bonuses, given Wall Street's reputation as something of a
boys' club.

"Certainly the Wall Street crowd is very special to us,"
said Lonnie Hanover, a representative for Scores, a
high-end strip club in Manhattan. "December is an amazing
month for our business, but it's everything, it's Christmas
bonuses, Christmas spirit. They have their official parties
and then the unofficial party here."

Even the cautious are probably going to treat at least part
of their bonus as play money.

One senior investment banker at a big Wall Street firm said
he was putting this year's money "directly into the bank."

"I have a sailboat, a motor boat, an apartment, an
S.U.V.," he said. "What could I possibly need?" After brief
reflection, however, he continued: "Maybe a little Porsche
for the Hamptons house, but probably not."

Murdoch's $44M New York pad?

Report says News Corp. chief agrees to buy Fifth Avenue penthouse apartment for a record price.
December 17, 2004: 10:03 AM EST

NEW YORK (CNN/Money) - Rupert Murdoch, chairman and CEO of media giant News Corp., has agreed to buy the late Laurance Rockefeller's Fifth Avenue penthouse apartment for $44 million, according to a report published Friday.

The New York Times said the billionaire media mogul will pay the asking price for the three-story apartment in a lavish co-op at 834 Fifth Avenue. The price would be the highest ever paid for a Manhattan apartment if the deal goes through, the newspaper said, citing a source familiar with the deal.

The offer was accepted Monday by representatives of Rockefeller's estate, which is responsible for the sale, according to the Times. And once the contract is signed by Murdoch, he and his family must also be approved by the building's co-op board.

If approved, Murdoch would own the 20-room triplex that spans the building's 14th, 15th and 16th floors. It has 8,000 square feet of floor space and spacious terraces on each floor. The monthly maintenance fee is $21,469.07.

The building is already home to many wealthy New Yorkers, including A. Alfred Taubman, the former chairman of Sotheby's; Carroll Petrie, the philanthropist; Harold Prince, the Broadway producer; and John H. Gutfreund, the financier, according to the newspaper.

Murdoch, 73, is ranked No. 43 worldwide with a net worth of about $7.8 billion, according to Forbes magazine.

The current record for a Manhattan apartment sale is $42.25 million, paid last year for a pair of adjoining condominium units at the Time Warner Center on Columbus Circle, the Times said.

Steve Cohen

The Most Powerful Trader on Wall Street You've Never Heard Of
Meet Steve Cohen.

Even his enemies admit he's the best stock trader around, routinely trouncing the market with his $4 billion hedge fund. Just how does he do it?

A gunmetal-gray BMW 745 Li sedan slips out of Steven A. Cohen's 14-acre walled estate. The chauffeured car races along the winding backcountry hills of ultrawealthy Greenwich, Conn. At around 8 a.m., it powers into the parking lot of SAC Capital Advisors. Cohen quickly emerges and darts into the front entrance of his gleaming steel and terra-cotta-slabbed Stamford (Conn.) headquarters. His driver swings the car around to the back and parks in a space with a simple reserved sign amid a sea of testosterone-exuding cars belonging to his traders: Mercedes S600s, Lexus sport-utility vehicles, and Porsche Carrera 4s. Cohen will soon be sitting at what one trader calls "command central" -- his desk with its numerous screens, perched in the midst of a football field-length trading floor. In the next few hours he is likely to earn several million dollars.

Cohen, 47, is the most powerful trader on Wall Street you've never heard of. The founder of SAC Capital Advisors, a highly secretive and stupendously successful $4 billion group of hedge funds that bears his initials, is considered to be a market genius by even his harshest critics. His firm routinely accounts for as much as 3% of the New York Stock Exchange's average daily trading, plus up to 1% of the NASDAQ's -- a total of at least 20 million shares a day. And while most of his rivals struggle to keep their trading costs down, "Stevie," as he's known on Wall Street, is one of the few to pay full freight. He hands over about $150 million a year in commissions to Wall Street, making him one of its 10-largest customers.

The payments grease the superpowerful information machine that Cohen has built at SAC. The firm's credo, says a former SAC trader, is to "try to get the information before anyone else." The torrent of commissions wins Cohen the clout that often makes him privy to trading and analyst information ahead of rivals. Says one analyst: "I call Stevie personally when I have any insight or news tidbit on a company. I know he'll put the info to use and actually trade off it." Cohen expects to get the first call when an analyst upgrades or downgrades a stock, and if he doesn't, offenders have been known to get a tongue-lashing from SAC traders. Brokers lavish plenty of other privileges on him. For instance, SAC was a big beneficiary of allocations of red-hot initial public offering shares during the Internet boom, according to several former SAC traders.

Cohen manages less money than hedge-fund titans such as George Soros or Julian Robertson did at the height of their powers, but his sheer trading prowess leaves them in the dust. At the heart of his empire are 40 "portfolios." Each has between one and 15 traders and analysts who execute various strategies. The primary focus is a long-short equity strategy, but more recently the firm has branched out into convertible and statistical arbitrage, quantitative strategies, and big bets on interest rates. Investors' money is channeled through seven different "portfolio companies" or funds -- including a core fund, a global diversified fund, and a health-care fund, each with an offshore counterpart. One fund, Sigma, consists mainly of his personal money, say insiders.

But Cohen's reach, and power, extend well beyond the seven funds. The billionaire, who earned an estimated $128 million last year and $428 million in 2001, according to Institutional Investor, has a finger in funds other than his own. Top SAC traders have contracts that contain provisions giving Cohen the right to fund up to half their capital if they leave to start their own funds, as many have done. He sometimes gets more favorable terms than other investors, such as being able to pull out his money early. Says a former SAC trader: "Cohen's presence, and market-moving capability, is probably the largest of anyone on the Street."

So is the fear Cohen inspires on Wall Street. Says a trading executive at a brokerage house: "It's great if you're in the Stevie camp that day or that month. But he can turn against you in the blink of an eye and redirect his capital somewhere else if he gets pissed off." Few of the several dozen people -- including former and current employees, other hedge-fund traders, Wall Street analysts, and proprietary traders -- that BusinessWeek interviewed over a three-month period would speak on the record about Cohen or SAC. Cohen, who's "almost as secretive as Howard Hughes," according to one source, declined to be interviewed or photographed. An insider describes him as "incredibly camera-shy and publicity-averse." He requires employees to sign dense confidentiality agreements. SAC officials would not comment on the record for this story.

Colleagues praise Cohen for his intensity and singular focus on reading the tape -- identifying trends by studying money flowing in and out of stocks. He teaches his traders a strict discipline of cutting losses by bailing out of losing positions fast. His own ability to acquire and distill bits of seemingly innocuous information and then apply them to his trading is unparalleled. "He has incredible instinct and the uncanny ability, when faced with 100 facts, [of] knowing which one to pay attention to," says Jack D. Schwager, author of Stock Market Wizards, a book about world-class traders. Adds Laszlo Birinyi, president of Birinyi Associates Inc., an investment research firm in Westport, Conn.: "Cohen can absorb this huge amount of input and come out with music when most of us just come out with noise."

Cohen started picking up these skills at an early age. He grew up in Great Neck, N.Y., in a strictly middle-class family, with a father who worked in the dress manufacturing business and a homemaker mother. As a child, he followed sports scores assiduously in the New York Post that his father would bring home every evening. He started noticing that the financial pages were also filled with numbers. "I was fascinated when I found out that these numbers were prices and they were changing every day," he told author Schwager. By his early teens, Cohen was hanging out at a local brokerage office, watching stock quotes. "You could see volume coming into a stock and get the sense that it was going higher," he told Schwager. These days the action in the stock market is so fast that it's difficult to follow the tape so closely, "but everything I do today has its roots in those early tape-reading experiences," Cohen told Schwager.

By the time he attended the University of Pennsylvania's Wharton School, where he earned a bachelor's in economics, Cohen was so obsessed with stocks that he traded between classes, according to a college friend. He was also a mean poker player at Wharton. "I thought that I was quite the poker player, but Steve cleaned house on me," says a longtime friend and SAC investor. After Wharton, Cohen headed to Wall Street, where he landed a job as a junior trader in the options arbitrage department at Gruntal & Co. in 1978. His very first day, he made an $8,000 profit, and eventually was netting around $100,000 a day for the firm, says his former boss there, Ronald Aizer. "He learned early on how to use the block-trading ability of the big firms" by watching their trades, says Aizer. By 1984, Cohen was running his own trading group at Gruntal, which he did until he set up SAC.

Friends say Cohen, though now immensely wealthy, has never been driven entirely by money. "He loves what he does. The money is merely his scoreboard," says one longtime friend. His stats are impressive. Armed with hot information and an ironclad trading discipline, Cohen has posted blowout returns throughout his firm's 12-year history. He has been up an average of at least 40% annually before his eye-popping 50% performance fee. (Most hedge funds charge 20%.) Last year, his worst ever, Cohen gained 13%, according to investors. "It was quite a disappointing year for him," says George Fox, an SAC investor and president of Titan Advisors Inc., a fund that invests in other hedge funds. Still, with the Standard & Poor's 500-stock index down 23%, it was almost like turning water into vintage Bordeaux. In the first half of this year, SAC is up 14% before fees, vs 11% for the S&P 500. Says Fox: "Steve trades very actively. That's one way he controls risk. He won't let a losing position sit there." Cohen and his business partners are the biggest investors in the fund, comprising some 60% of its assets. The remaining investors are typically other big-money, largely anonymous Wall Streeters. In the past three years, Cohen has returned most of the pension money that his funds managed, says a former trader.

Cohen's single-minded focus puts enormous pressure on SAC's 200 or so traders and analysts. "If you can't cut it within a few months of starting, Stevie will blow you out like that," says a former trader, who says he was fired for losing a substantial amount in one trade. Another says he left to escape the "ulcers and night sweats" he suffered while working there. SAC traders, who often earn $2 million-plus, are paid according to what they make on their individual trades, not on the overall performance of the fund, as at most hedge funds. "You eat what you kill," says one former trader. Adds another: "At SAC, you either perform or you're dead."

Earlier this year, the Securities & Exchange Commission launched a wide-ranging investigation into the $500 billion hedge-fund industry, including whether some of its practices represent conflicts of interest. "Few hedge managers are out-and-out fraudsters, but there are no doubt thousands who have convinced themselves that crossing some lines is O.K.," says Randy Shain, president of BackTrack Reports Inc., a business investigator. BusinessWeek didn't turn up any records of disciplinary action against Cohen or SAC by regulators at the SEC or the National Association of Securities Dealers.

Some of Cohen's investors see the criticism as sour grapes. "People on Wall Street tend to get jealous of anyone with a terrific track record," says one. Adds Columbia University securities law professor John C. Coffee Jr.: "If you are a market force that's very successful, you're going to have some vocal enemies."

Because he practices what a former SAC trader calls "active trading on steroids," there's little doubt that Cohen and his traders are very aggressive in seeking an edge. On Dec. 27, 2001, the day after ImClone Systems (IMCL ) Chief Executive Samuel D. Waksal found out that the Food & Drug Administration had rejected an approval application for the company's cancer drug, Erbitux, an SAC trader named Jason Bonadio was one of a handful of investors to call Waksal that day. Former traders say SAC noticed a price movement, though the news wouldn't be publicly released until the next day. Domestic diva Martha Stewart placed her now infamous call to Waksal 17 minutes after SAC's, according to Waksal's phone log obtained by a congressional committee investigating ImClone. Sources familiar with the firm say Bonadio's call was forwarded to ImClone's investor relations department and never returned. SAC lost "millions" on a long position on ImClone, they say. Bonadio, who has left SAC, declined to comment.

Recently, the whispers about how Cohen and SAC operate evolved into full-fledged buzz. In January, one of SAC's star traders, Michael Zimmerman, came under SEC scrutiny for allegedly trading on information in company reports written by his wife, Holly B. Becker, a noted Lehman Brothers Internet analyst, before they were published. Both Becker and Zimmerman were served in late January with Wells Notices -- documents warning of a possible civil action by the SEC relating to stock trading. Their lawyers declined comment. Sources familiar with the company say SAC is not under investigation by the SEC. They add that if anything untoward occurred, it took place before Zimmerman joined SAC. Because Zimmerman still works at the firm, the affair has brought a great deal of unwelcome publicity to the fund and Cohen himself.

BusinessWeek has learned of a situation that has the appearance of a conflict of interest. Glenn Tatarsky, a trader at Sigma, one of Cohen's funds, had been actively trading the stock of retailer American Eagle Outfitters (AEOS ) Inc. in 2001 and 2002. He was then living at the same address as Kindra Devaney, a retail analyst at Fulcrum Global Partners, who is now his wife. At the time she was negative on American Eagle. On Jan. 28, 2002, she issued the only "sell" rating among the 21 analysts then covering the company, according to Bloomberg Financial Services. BusinessWeek found no evidence that she ever shared information with Tatarsky about American Eagle before publishing her report or that he traded on anything he heard from her. However, he did buy stock on each of the three days leading up to Devaney's sell recommendation, sources familiar with the matter say. Either way, the incident raises questions about how SAC handles potential conflicts of interest when employees trade stocks that their partners analyze at other firms. Sources familiar with the company say it has one of the most stringent codes of conduct in the industry. Fulcrum's CEO Michael C. Petrycki says: "We were unaware of the situation, but our policy prohibits only immediate family from trading stocks we cover."

Physically, Cohen doesn't live up to his image as the Rambo of traders. The bespectacled, balding billionaire, about 5 ft. 8 in., looks like a slightly more hip version of George Costanza -- the Seinfeld character played by actor Jason Alexander. "He's low-key and self-deprecating -- he definitely has an awkwardness about him," says Schwager. Even when Cohen is executing a multimillion-dollar trade, adds Schwager, he exhibits such zenlike calm, it's "like he's ordering a sandwich." Says Ari Kiev, a psychiatrist and trading coach who has worked with Cohen and his traders for more than 10 years: "As the market evolves, Steve keeps recreating himself and never rests on his laurels. He always asks himself, 'what more can I do, what did I do wrong, how can I do better?"'

Calm and self-reflective he may appear, but Cohen is not averse to using sharp elbows to get to the head of the line. For instance, several industry insiders say SAC sometimes tries to suss out what other hedge funds plan to do and beat them to the punch.

To stop rivals from riding its coattails, SAC sometimes makes head-fake trades to camouflage its own intentions, say former SAC traders. It's a tactic, they say, Cohen learned soon after setting up SAC in 1992 with $20 million of his own and investors' money. Says a former assistant to Cohen: "In the beginning, things were so disorganized that a trader would be selling off shares of a stock just when Stevie wanted to buy. Stevie would stand up and yell at the trader." But Cohen also noticed the stock would drop like a rock if the other SAC trader sold first. Then, Cohen could buy back the block, then some more, at a cheaper price. Critics claim that Cohen operates what they call a "reverse desk." Former traders say it works like this: The firm purchases a relatively small amount of the stock, then starts selling it off through various Wall Street brokers. "When word gets out that SAC is selling, the Street goes nuts and also starts unloading big blocks," says one. Then Cohen swoops to buy. Sources familiar with SAC say that this type of trading or a reverse desk have never existed. Even if it does, it wouldn't pose any legal problems. Says Columbia's Coffee: "There's nothing wrong with making inconsistent orders in order to prevent your competitors from knowing what you're doing."

In another tactic, Cohen and his core group of traders sometimes "take the Street," according to former traders. SAC buys large blocks of a particular stock through a handful of major brokers simultaneously in an attempt to clean out their inventories. Often, the big investment banks have to buy back shares on the open market to replenish the inventories they need to hold as market makers, thus causing a pop in the price. Says a former SAC trader, "Stevie can take 8 desks in 10 minutes. The more guys he has doing what he's doing, the more he can move stocks." Once the stock has risen, SAC might even sell the same shares back to the brokers, making a tidy profit. Sources familiar with SAC say the firm doesn't engage in the practice. Says Coffee: "There's nothing wrong with trying to clean out market makers to get a lot of stock quickly at a reasonable price. If a large hedge fund buys slowly, the word gets out and that drives the price up more."

SAC also sometimes orchestrates "short squeezes," say former traders and rival fund managers. When there's a large short position in a stock, SAC will start buying it, causing shorts to cover, thus driving up the price -- at which point SAC sells. Sources familiar with the firm say SAC has never done this. Experts say the practice is legal.

What makes Stevie mad? Simple: Not getting preferential treatment. Several analysts say that SAC traders often pressure them for upgrades, downgrades, information, or insight into trading flow. And sometimes getting the information first doesn't seem to be enough. Says one analyst: "There was one day when I had at least 15 voicemail messages from two different SAC traders about how I was rating a particular stock. They don't exactly say, 'change your rating or else,' but they give you a hypercharged sales pitch on why you should change it." Sources familiar with SAC say that the firm expects employees to conduct themselves in a professional manner and doesn't condone such behavior.

Of course, Cohen usually makes nice with the Street. For example, former traders and rivals say one way he built his business and his relationships with brokers was by buying secondary offerings -- when public companies decide to bring more shares to market -- on which brokers receive around 40 cents to $2 a share on a built-in sales commission. "If you take down a million shares of a secondary, you've just paid your broker $1.5 million," says a fund manager. "That's how Stevie started off paying the Street."

Cohen's home life seems a far cry from the frenzied pace of SAC. He met his wife, Alexandra, who grew up in the Bronx and is described by a friend as "dark-haired and pretty in a petite way," through a dating service after divorcing his first wife. "From the time she was a child, Alex always said she wanted to marry a millionaire. She struck out," jokes a family friend. "She got a billionaire." Cohen has seven children and stepchildren.

In 1998, the Cohen family bought a 30-room Greenwich mansion built in 1930 for around $15 million. It was quite a move up from their previous $2 million house. They put millions of dollars more into an elaborate renovation and extension, say friends. Says one: "Steve told me, 'We took a beautiful old house and basically ruined it."' It is completely obscured from the street by a roughly 12-foot-high wall. Cohen is so secretive that he installed an extensive alarm system that beeps whenever someone walks into a room or out, say acquaintances.

The grounds, which some neighbors call Chelsea Piers -- after the mammoth Manhattan sports complex on the Hudson River -- include a basketball court that becomes an ice-skating rink in winter, several golf holes, and a bubble-enclosed swimming pool. "For kids, getting invited to the Cohens is one of the most coveted invitations in Greenwich," says a neighbor. Still, neighbors complained about massive, lengthy renovations at the house.

Cohen may not be impressed by his own billions, but Alex has coaxed him into "lavish entertaining, round-the-world art-buying trips, white-gloved butlers, that sort of thing," says an old acquaintance. For a housewarming party, she sent out an invitation she thought of herself: a deck of playing cards with a photograph of Steve as the king in a velvet robe and crown, herself as the queen, the children, and various and sundry household help as other cards.

Still, friends say Alex is a driving force behind the Cohen's generous charitable giving. In 2002, they gave $15 million to the Robin Hood Foundation, a charity founded by hedge-fund icons Paul Tudor Jones II and Stanley Druckenmiller. And they've given millions to aid families of World Trade Center victims and funded a walk-in clinic at Greenwich Hospital, among other activities. Cohen is also on the board of the Michael J. Fox Foundation, a nonprofit that fights Parkinson's disease.

The flow of charitable donations isn't likely to dry up anytime soon. SAC is having yet another good year, by most standards. But those 14% gains may not be setting well with Cohen. No doubt he wants to return to his mammoth 40%-plus gains. That may explain, in part, why he has branched out into multiple strategies recently. Indeed, in the wake of Wall Street scandals and the increased scrutiny of analysts, SAC is trying to live down its barracuda-like image. It recently hired a public-relations firm to assist it. "They know the spotlight is on them and they're really trying to clean up their act," says a former Sigma trader.

Cohen's active trading is now mainly focused on the firm's core fund that he manages. He continues to prune back the amount of capital he trades -- making the fund a lot more nimble -- while at the same time expanding his palette of trading strategies. Says a rival hedge-fund manager: "He seems to be trying everything to get that old magic back." Not that Stevie ever really lost it.

By Marcia Vickers