SAC Clients Said to Seek $1.7 Billion in Refunds
Clients of SAC Capital Advisors have asked to withdraw $ 1.7 billion from the giant hedge fund as the government’s insider trading investigation intensifies, according to people briefed on the matter.
That amount represents slightly more than a quarter of the $ 6 billion that the fund manages for clients, and underscores the reputational damage to SAC from a spate of criminal cases tied to former employees of the firm.
Investors had to inform SAC by Thursday — a regularly scheduled quarterly withdrawal deadline at the fund — whether they wanted their money back.
While the outflows are a blow to SAC and its owner, the billionaire investor Steven A. Cohen, they are expected to have little impact on the fund’s business. More than half of SAC’s assets under management, which stood at $ 15 billion as of mid-January, belong to Mr. Cohen and his employees.
SAC also has stringent rules in place that prohibit clients from withdrawing all their money at once. Under its so-called redemption terms, the fund will pay out about $ 660 million at the end of next month to investors who have made withdrawal requests and return the balance of the $ 1.7 billion in quarterly installments through year-end.
“As we have been saying, the redemptions will have no significant impact on our funds,” said Jonathan Gasthalter, a spokesman for SAC, which is based in Stamford, Conn., and has more than 1,000 employees.
Still, the departure of clients is a rare setback for a firm that has one of the best investment track records in the industry, with average annual returns of about 30 percent over the last two decades. Hedge fund customers have long clamored to put their money with Mr. Cohen, whose trading acumen is legend on Wall Street.
But for certain clients, the government’s investigation into insider trading at the fund raised questions about SAC and whether keeping money there was worth the reputational risk. Among the clients that have severed ties with SAC are a Citigroup unit that manages money for wealthy families and Lyxor Asset Management, a division of the French bank Société Générale.
Some SAC investors have grown concerned over the future of the fund as its legal problems have escalated. At least eight current or former SAC employees have been tied to allegations of insider trading while working there, four of whom have pleaded guilty.
In the latest case, filed in late November, the government brought charges against Mathew Martoma, a former SAC portfolio manager, in a case that prosecutors are calling the most lucrative insider trading scheme ever uncovered. Mr. Martoma has pleaded not guilty.
The trades at the center of the case involve Mr. Cohen, who has not been charged. Federal securities regulators have advised SAC that they may file a civil fraud action against the firm related to the Martoma trades.
Some SAC clients have taken a cautious approach, keeping their money with the fund while monitoring the government’s case. The Blackstone Group, SAC’s largest outside investor, took this route, saying it would keep its $ 550 million investment with the fund while it tracks developments.
SAC risked losing Blackstone as a client, but assuaged the influential firm’s concerns by loosening the terms of its redemption policy. Earlier this week, the hedge fund notified Blackstone and other clients that they could wait another three months to make a withdrawal request, yet still be able to get all their money back in 2013. Under SAC’s original rules, investors would have had to redeem this week to get their last dollar out by the end of the year.
“We will use this period of time to evaluate all additional information which becomes available,” said a Blackstone spokesman.