SAC Loses $1.68 Billion From Investors
Investors in SAC Capital redeemed $1.68 billion Thursday, according to people familiar with the matter, a nod to a raft of legal issues that have embattled the hedge fund in recent months since a new government insider-trading case raised questions about founder Steve Cohen's potential involvement in illicit activity.
SAC is fighting that case, made in November by the Justice Department and the Securities and Exchange Commission, arguing that Cohen and the firm did nothing improper. But Citigroup, Blackstone, and other major investors in the $14 billion company have nonetheless been spooked by the possibility that Cohen might be charged and that their investments could be left with a company whose future is very uncertain.
(Read More: SAC Capital's Martoma Pleads Not Guilty.)
On Thursday, which was the deadline for removing investor capital by the end of the first quarter, many of those investors voted with their feet.
Blackstone pulled some of its roughly $550 million SAC investment, along with a raft of other investors of all sizes and strategies. (Citigroup had previously announced a planned redemption of nearly $200 million.) All in, about $660 million of the redeemed capital will be returned by March 30, with an additional $1 billion or so to follow by Dec. 30.
Despite the headline damage, SAC overall will not be hurt by the redemptions, said a person familiar with the matter Friday morning. Solid performance has tipped its total assets to more than $15 billion in recent months, roughly $9 billion of which belongs to Cohen, SAC president Tom Conheeney, and other insiders, who have of late added small amounts of capital, said this person, and plan to add more.
(Read More: SAC Capital Sees Returns Amid Trading Scandal.)
If the pace of last year, in which SAC's gross profits were $270 million per month on average, continues, the firm will make up for the lost investor capital by year end, this person added. In addition, the departure of more than 10 portfolio managers and a general mandate since the financial crisis to keep more money in cash has given SAC greater access to liquidity.
Still, the removal of nearly $2 billion in capital is a symbolic blow to Cohen and his colleagues, given that expectations were reportedly more in the $1 billion range.
The next three months will be crucial for SAC, as it seeks to fight back allegations that Cohen was involved in a decision to sell two pharmaceutical stocks in 2008 that may have been based on inside information. In addition, the SEC has threatened to charge SAC on a corporate basis with securities fraud, a move that would take the firm's legal challenges to another level.
Some investors, including Blackstone, opted Thursday to take advantage of a newly-installed incentive to keep capital with SAC for another quarter and still receive a full redemption by the end of the year if they chose to pull capital in three months. By the middle of May, Blackstone and others hope to have greater clarity on the pharmaceutical case—for which prosecutors face a looming statute of limitations—among other things.
—By CNBC's Kate Kelly; Follow her on Twitter: @KateKellyCNBC