| BOSTON/NEW YORK, June 12
BOSTON/NEW YORK, June 12 A long list of rival
hedge funds is eager to tap the billions in outside money that
Steven A. Cohen's SAC Capital Advisors is expected to return to
investors by yearend.
Large hedge-fund firms structured like SAC, where Cohen
allocates capital to dozens of portfolio teams that trade mainly
in stocks, stand to benefit most from the ongoing insider
trading probe, hedge fund industry investors and analysts said
in a series of interviews. (Most did not want to be identified
because of running or investing in funds that compete with SAC
or have done business with it.)
Israel Englander's $18 billion Millennium Management, which
has long had a rivalry with SAC, is the name that comes up most
often as a possible alternative investment, the industry sources
said. The firm also relies on a group approach where dozens of
smaller portfolio teams, rather than one or two main managers,
buy and sell securities quickly, often thousands of them.
Balyasny Asset Management, Visium Asset Management and
Kenneth Griffin's Citadel, which all feature multi-manager
trading teams, have also been named frequently as candidates for
some of the estimated $3 billion to $4 billion expected to leave
SAC, said industry sources.
Several people mentioned Hutchin Hill, a $1.1 billion firm
run by former SAC Capital trader Neil Chriss. The firm employs a
strategy similar to Cohen's and is taking money from new
All five firms either declined to comment or did not return
requests for comment.
A person who worked for a fund invested with SAC said
investors had two options: They could stick with Cohen's trading
style and move money to some of his direct competitors or
spin-offs. Or they could switch strategies and allocate money to
funds that make longer-term and often more-concentrated stock
Industry insiders said there were thousands of possible
choices in the $2.25 trillion hedge fund industry. Investors had
until June 3 to tell SAC whether they wanted to exit the fund,
making it one of the mostly hotly watched industry deadlines in
A handful of people familiar with SAC Capital said it would
take months for the money to be returned to investors. (A
representative for SAC Capital declined to comment.) Several
cautioned that it was far too soon to say with any certainty who
might stand to benefit from Cohen's current woes, even though
long-time SAC investors would probably prefer to find similar
kinds of managers.
Investment committees usually take time to switch their
asset allocations. Those that have liked SAC's roughly 30
percent annual returns and are not concerned about the
decentralized investing model may want to stick with firms that
have a kindred approach.
Millennium Management was built much as SAC was over the
last two decades. Both firms are big: Millennium employs some
1,310 employees, including 810 investment professionals; SAC's
respective figures are roughly 1,000 and 400. Englander's firm
has returned an average 14.5 percent per year since its launch
in 1989. The two firms have often vied for the same traders and
portfolio managers, said people who know them both well.
Millennium paid $180 million in 2005 to settle charges of
improper mutual-fund trading. It now has what some insiders are
calling some of the toughest compliance requirements in the
Blackstone Group Inc, which has $46 billion under
management, recently notified Cohen that it intended to redeem
most of its clients' $550 million investments. The firm invests
money for pensions, corporations, foundations and wealthy
individuals with dozens of prominent hedge funds.
A representative for Blackstone declined to comment.
Some of its clients have said they are becoming more
sensitive to seeing one of their money managers in the news.
Nine former or current SAC employees have been charged with or
implicated in improper trading.
"What is in now are funds that are squeaky clean," with
"excellent reputations and no sorts of legal problems," said
Ferenc Sanderson, a partner with hedge fund advisory and
research firm PrevInvest. "The funds that are run as platforms
have pretty much fallen out of favor."
One manager, who asked not to be named because he might be
in the running to get some redeployed SAC money, was blunter.
"This is going to be the death knell for funds where you have 50
traders with their own profit and loss statements ... The
government is going to make you responsible for them."
Industry experts agreed that the multi-billion-dollar hedge
funds with the infrastructure to cater to institutional clients
will be the ones to benefit as pension funds and others get out
Adam Kahn, managing partner at headhunting firm Odyssey
Search Partners, had another thought: "There are going to be a
few very good managers coming out of SAC launching
funds. Depending on how well these guys are known by investors,
they may see some of that cash too."