New York, NY – The ongoing insider trading investigation at $15 bln Stamford CT-based hedge fund SAC Capital, is expected to have a huge impact on 2nd Quarter investor redemptions, with some estimating that $3.5 bln in redemption requests will be submitted. This follows $1.7 bln in redemption requests in the 1st qtr.
According to executives at SAC Capital, withdrawal requests are expected to reach $3.5 bln in the second quarter as firms like Blackstone, Magnitude Capital, and Ironwood Capital have already asked to withdraw capital from the fund. Blackstone, the largest outside investor in SAC, has decided to redeem a significant portion of its roughly $550 million allocation from the hedge fund, while Ironwood has submitted a request to withdraw $100 mln in capital.
At the beginning of 2013, outside investors in SAC Capital accounted for roughly $6.75 billion of the $15 billion in assets managed by the hedge fund. In the first quarter, outside investors submitted requests to withdraw about $1.7 billion of that $6.75 billion by the end of the year. If redemption requests hit $3.5 bln in the second quarter as feared, SAC would be left managing less than $1.5 bln in assets for outside investors.
Waning Investor Confidence
The spate of redemption requests in the last two quarters at SAC is a direct result of waning investor confidence resulting from the government’s ongoing insider trading investigation at the hedge fund. In March, SAC Capital reached a $616 million agreement 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.
Despite this, the SEC continues to investigate the firm for additional insider-trading issues. Earlier this month federal authorities issued grand jury subpoenas seeking testimony from SAC founder Steve Cohen and four other executives at the hedge fund, including portfolio manager Anthony Vaccarino, president Tom Conheeney, chief operating officer Solomon Kumin, compliance head Steve Kessler, and director of trading Phillipp Villhauer.
Plans to Return Outside Capital Possible
Some say that SAC Capital Advisors is preparing plans to return capital to outside investors and become a family office. A decision on this plan could some within a few weeks. The reason Cohen might do this is because US prosecutors are considering racketeering charges against SAC as a criminal enterprise. To avoid these or any other charges, Cohen could offer shutting down the firm to outside investors, as part of a negotiated settlement to prosecutors.
The second quarter redemption deadline for SAC is Monday, June 3rd, 2013.