May 25 Billionaire hedge fund manager Steven A.
Cohen is losing the financial support of Blackstone Group Inc
, the largest outside investor in his embattled SAC
Capital Advisors, which is yanking much of its client
money, according to a letter reviewed by Reuters.
A pension consultant, in a May 21 letter to clients, said
Blackstone has notified Cohen that it intends to "fully redeem"
a significant portion of the roughly $550 million the investment
firm has invested with the $15 billion hedge fund. The letter
from pension consulting firm Russell Investments said Blackstone
submitted its redemption notice to SAC Capital sometime before
May 15 because of ongoing concerns about the insider trading
investigation that continues to engulf Cohen's fund.
Blackstone's investment with SAC Capital is through several
investment funds known as hedge fund of funds and also through
separately managed accounts it maintains for clients. The
decision to redeem from SAC Capital impacts only client money
invested in its hedge fund of funds, according to the letter.
It's not clear how much of the $550 million is in those hedge
fund of funds and it is not clear what Blackstone is advising
clients who have money in separately managed accounts that is
invested with SAC Capital.
Russell did say in the address to its pension clients that
Blackstone "expects to receive 100 percent of investors' capital
by year-end." Russell, which manages $173 billion in assets and
oversees a number of index funds, also provides advice to
pensions and institutional investors on where to invest their
dollars in hedge funds.
The timing of Blackstone's request to withdraw money from
SAC Capital is critical because it came before the hedge fund
told investors on May 17 that its cooperation with federal
authorities was no longer unconditional. Soon after, news broke
that federal prosecutors had issued grand jury subpoenas earlier
this month to Cohen and several of his top executives, seeking
their testimony about insider trading at the hedge fund.
The decision by Blackstone, which has invested with SAC
Capital for at least a decade, is a big blow to the 56-year-old
fund manager, who is widely regarded as one of the most
successful traders of his generation. Blackstone - which manages
about $46 billion in hedge fund investments for public pensions,
foundations, corporations and wealthy individuals - is seen as
something of a bellwether for other investors in the $2.2
trillion hedge fund industry because of its stature.
Representatives for Blackstone did not immediately respond
when asked for comment on Saturday. An SAC Capital spokesman
declined to comment.
The letter from Russell Investments, which was reviewed by
Reuters, made no mention of the subpoenas on Cohen and his
executives and was sent after a Russell representative talked to
a Blackstone executive about the redemption decision. The letter
said Blackstone decided to submit a redemption notice to SAC
Capital after reviewing the terms of a $616 million deal SAC
Capital reached in March with the U.S. Securities and Exchange
Commission to settle allegations that the hedge fund's employees
had engaged in insider trading in four stocks.
Blackstone, according to the letter, said the settlement
with the SEC "did not give additional comfort that the issues
at-hand were resolved."
A representative for Russell Investments did not respond to
a request for comment about the letter from its Russell Research
Outside investors in SAC Capital like Blackstone, who
account for roughly $6.75 billion of the $15 billion managed by
Cohen, have until June 3 to decide whether to submit redemption
notices for the second quarter. In the first quarter, outside
investors notified Cohen they intend to withdraw about $1.7
billion of that $6.75 billion by year's end.
People close to SAC Capital said Cohen, who has roughly $8
billion of his money invested in SAC Capital, is bracing for
another large round of redemption requests. The speculation is
growing in the hedge fund world that if Cohen gets another large
round of redemption requests, he may opt to return all the
outside money and convert SAC Capital into a family office - an
unregistered firm that manages money just for himself and his
friends and family.
SAC Capital is one of the world's larger hedge funds with
Blackstone's hedge fund of funds invests client money 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.
The decision by Blackstone to redeem comes after the private
equity and investment firm has stuck with Cohen throughout the
course of the long-running investigation that has so far
resulted in nine one-time employees of the firm being charged or
implicated in insider trading schemes.
Cohen himself has not been charged with wrongdoing, but the
investigation is seen as increasingly focusing on him and his
In late April, lawyers for Cohen and his firm met with
federal prosecutors in Manhattan to make their best case
argument about why the hedge fund billionaire and his SAC
Capital Advisors should not be charged with criminal wrongdoing.
But people familiar with that meeting said the lengthy
presentation did not impress federal prosecutors, who are now
considering whether to use a racketeering law aimed at
prosecuting the Mafia and drug gangs to pursue a criminal case
against Cohen's hedge fund.