By Katya Wachtel and Jennifer Ablan
NEW YORK Feb 15 Hedge fund billionaire Steven
A. Cohen is feeling the pinch from the federal government's
insider trading probe as outside investors in his SAC Capital
Advisors submitted requests to withdraw a total of $1.68 billion
from the firm by year's end.
The amount of the investor redemption notices exceeds the $1
billion figure Cohen had been telling the 900 employees at his
$14 billion hedge fund to expect. The firm was bracing for
withdrawals as the insider trading investigation increasingly
focuses on the activities of former employees of Cohen's fund.
But the redemptions likely will not impede SAC Capital's
operation in the near term, because they will be made in
quarterly payments to the investors. And roughly 60 percent of
the money managed by Cohen's firm is either his or his
Approximately $660 million in redemptions will be paid out
on March 31, an amount that includes some prior redemptions
received in 2012. The remaining roughly $1 billion of the new
redemption request will be paid in out in the subsequent three
A representative for one of Cohen's outside investors said
even if all of the roughly $6 billion in outside money was
withdrawn from SAC Capital, the hedge fund would still be able
An employee of SAC Capital who did not want to be identified
said, "SAC could handily cover all costs for operation," in the
unlikely event all the outside money were withdrawn.
A person familiar with the firm said SAC's trading profits
will help offset losses from the $1.68 billion investors are
SAC's deadline for outside investors to request redemptions
in the first quarter was Thursday night, even though the
redemptions will be paid out quarterly over the course of this
SAC's biggest outside investor, Blackstone Group, is
keeping most of its $550 million with the firm. The asset
management arm of the private equity firm decided to stay with
Cohen's firm after negotiating more flexible redemption terms on
behalf of all of the firm's investors.
Cohen, after negotiating with Blackstone, decided to treat
investors who wait to redeem until the second quarter no
differently than those who redeem now - meaning those who redeem
next quarter will also get all their money out by the end of
2013, instead of over four quarters.
Until now, Cohen's outside investors generally had stood by
him as the government investigated allegations of insider
trading at SAC Capital for at least six years.
One reason investors have stuck with Cohen is because he has
delivered annualized average returns of about 25 percent since
his firm was launched in 1992. SAC Capital's flagship fund
gained 13 percent last year, when hedge funds on average only
returned 6 percent.
In January, SAC Capital was up 2.5 percent, about in line
But following last November's arrest of former SAC portfolio
manager Mathew Martoma, in what is alleged to be one of the most
lucrative insider trading schemes on record, some investors are
losing patience. Citi's private bank, for example, is
withdrawing $187 million from SAC this quarter.
That said, many investors, which include high net worth
individuals and firms that manage money for small groups of
wealthy families, will not say what they are doing.
Wall Street investment bank Morgan Stanley, which is
invested in SAC through a fund of funds unit, declined to
comment on whether it was part of the group of investors pulling
money from SAC in the first quarter. British-based HSBC, which
also has an allocation to Cohen's fund, said in an email, "We do
not comment on our positions in individual funds."
Some high net worth and family offices are said to have been
reassured by Cohen's pledge that investors would not pay for any
legal fees incurred by the firm in relation to the insider
trading probe. Also, because SAC trades in highly liquid stocks,
investors have said that if the firm were forced to unwind it
could be done relatively quickly.
As for Cohen's staff, for the moment his senior managers are
staying put, according to several headhunters who work in the
hedge fund space. One recruiter acknowledged that there has been
departures, but it is Cohen's most junior people heading for the