Worth the Postage?

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New York – In a letter to investors sent at the end of January, SAC Capital’s Steve Cohen assured his investors that he does not expect any losses or costs stemming from the government investigation into insider trading which is reportedly targeting SAC.

In November, SAC along with two other hedge funds run by former SAC employees (Level Global and Diamondback) were subpoenaed in connection with the insider trading case being led by Preet Bharara, the US attorney in Manhattan, which so far has ensnared mostly former Primary Global employees, experts and clients.  So far, neither SAC nor any of its current employees have been charged with wrong doing in the case.

Mr. Cohen told investors in his Jan. 31st letter that he was “confident there will be no financial impact to our investors…While this investigation plays out, I and the other portfolio managers remain focused on managing the assets entrusted to us.  We are confident that our ability – and my ability – to do so will not be affected.” Mr. Cohen also stated that the management company would bear any expense related to the subpoena.

Likely, Mr. Cohen’s letter was sent to forestall any redemptions by investors similar to those seen at Frontpoint, which had approximately $3 Billion worth from November through mid December, a figure that amounted to approximately 40% of the AUM at the fund and also caused the firm to shut down its $1.5 Billion healthcare focused fund.

Mr. Cohen also stressed SAC’s stable capital base, a result of the fact that much of the $12 Billion AUM comes from employees of the firm.  SAC’s flagship fund was also up approximately 13% last year and Mr. Cohen explained that he believes “it is likely that stock volatility and stock/factor correlation will stay reasonably low, and this should create a reasonably attractive environment for stock pickers.”  The somewhat rosy outlook he paints for 2011 is in contrast to a market which he called “strange” in 2010.

The focus of the investigation is shifting from expert networks to their clients.  As we wrote earlier this week, it would seem that with the recent arrest of a former Citigroup Inc. hedge-fund manager (Samir Barai), the SEC is not done with their investigation.  And while they may have started small, the theory is that their eventual goal is to land a big fish.  Until the ultimate goal of their investigation becomes clear it is unlikely that a letter to investors will calm nerves very much.

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