* Blackstone funds have $550 million with SAC Capital
* Long-time investor Titan bails on Cohen, despite returns
By Matthew Goldstein
NEW YORK, Dec 27 One of hedge fund billionaire
Steven A. Cohen's largest outside investors, private equity firm
Blackstone Group LP, appears inclined to keep its money with his
SAC Capital Advisors, even as the U.S. government scrutinizes
the fund in its ongoing insider trading probe.
Three sources said the asset management arm of Blackstone
, which has $550 million invested with SAC Capital, is in
no rush to redeem money from the Stamford, Connecticut-based
hedge fund. Blackstone has had at least three discussions with
the $14 billion hedge fund's executives about the insider
trading investigation and talked to its own investors, which
include state pension funds, endowments and wealthy individuals.
Seven current and former SAC employees have been charged or
implicated in the insider trading probe into hedge funds and
their sources of trading tips, and the firm itself - along with
the 56-year-old Cohen - has been drawing renewed scrutiny.
"I am unaware of any representation by Blackstone that they
are pulling out," said Robert Klausner, a Florida attorney who
represents a pension fund from Louisiana that is an investor in
a Blackstone fund with money at SAC Capital.
A Blackstone spokesman and an SAC Capital spokesman both
declined to comment.
Outside investors in SAC Capital, who can redeem four times
a year, have until the middle of February to decide whether to
pull out some money. So officials at Blackstone, which accounts
for about 9 percent of the outside money invested in SAC
Capital, could still change their view on the hedge fund in the
event of a new development in the insider trading investigation.
Already Titan Advisors LLC has notified SAC Capital it
intends to pull money from the hedge fund. Titan, which invests
$3 billion of client money in more than 20 hedge funds, is one
of Cohen's longest tenured outside investors.
It's not known how much money Titan, which did not return a
request for comment, has invested with SAC Capital.
The question of investor redemptions from SAC Capital has
come up in the wake of charges brought last month by U.S.
authorities against a former SAC Capital portfolio manager,
Mathew Martoma. He is accused of using inside information to
generate profits and avoid losses totaling $276 million in
shares of two drug stocks, Elan Corp PLC and Wyeth.
In a sign U.S. authorities are ratcheting up the pressure on
Cohen, the Securities and Exchange Commission recently warned
SAC Capital that the firm could face civil charges over the
Martoma matter. Federal authorities also have expanded their
investigation to look into trading by the hedge fund in shares
of Weight Watchers International Inc and biotech company
Blackstone, whose chairman and chief executive is financier
Stephen Schwarzman, is seen by some as something of a bellwether
investor in the $2 trillion hedge fund industry because its
popular so-called hedge fund of funds invests with more than
four dozen hedge funds, including SAC Capital, Pershing Square
Capital Management, Elliott Management and DE Shaw & Co,
according to people familiar with the private equity firm's
asset management business.
Blackstone's $550 million investment in SAC Capital is a big
slice of the $6.3 billion in assets that SAC Capital manages
for its outside investors, said sources familiar with SAC
Capital and Blackstone. Roughly 55 percent of the dollars
invested in SAC Capital is Cohen's own personal fortune and
money from his employees.
Don Steinbrugge, chairman of Agecroft Partners, a hedge fund
consulting and marketing firm, said most institutional investors
that have money with SAC Capital will make their own decision on
whether to remain with the fund. But he said some investors
"will look to leaders in the industry to help guide them."
Klausner said an investment adviser hired by the Louisiana
pension fund he represents said it is comfortable with
Blackstone's decision to stay with SAC Capital after doing its
own research into the matter. Klausner said the decision by SAC
Capital to pick up the tab for any legal costs and fines that
might be levied by authorities against the hedge fund, gave his
pension client comfort.
"The indemnification was a huge deal and the fact that the
principals of SAC own 55 percent of the firm," he said.
Several other Blackstone investors said they also are
comfortable with whatever decision the investment firm makes
about keeping money in SAC Capital.
William Einhorn, administrator for the Teamsters Pension
Trust Fund of Philadelphia and Vicinity, which has money in a
Blackstone fund that invests with SAC Capital, said he last had
a communication with Blackstone about the investigation two
weeks ago and he is not telling the investment firm what to do.
"I am relying on the actions of our fiduciary," Einhorn
He and other Blackstone investors said they generally have
been satisfied with the performance of Blackstone's hedge fund
So far this year one of the Blackstone funds that invests
with SAC Capital, the $4.3 billion BPIF Partners Non-Taxable
fund, is up about 7 percent, according to an investor source. By
comparison, hedge funds on average are up 5 percent for the year
and SAC Capital's flagship fund is up a little over 10 percent.
Still, the decision by Titan to pull money out, which was
first reported by The Wall Street Journal, was a little
surprising to some given that the investment firm told its
investors in a September 2012 investment letter that SAC Capital
was one of its "biggest gainers" in the third quarter.
And in a December 2010 investor letter, Titan told its
investors it was not redeeming from SAC Capital after
determining that neither the firm nor its principals were "the
target of the investigations." At the time, Titan told investors
it would continue to "closely monitor" the matter.
Marisel Lieberman, assistant director for FIU Foundation
Inc, which invests in the Titan Masters International Fund, said
she was recently informed by Titan that it "has since fully
redeemed out of SAC funds."
A copy of the Titan letter informing investors of the
decision to redeem from SAC Capital could not be obtained.