SAC Capital Investors Could Pull Billions in Quarter
Hours before a crucial quarterly deadline for outside investors wanting to pull their money, officials of SAC Capital are expecting to lose a "significant" portion of its $6 billion in external assets, said two people familiar with the matter, suggesting that the years-long probe into alleged insider trading at the firm is now forcing even loyal investors to walk away.
Details of Monday's withdrawal notices, which must be filed by the end of the day but won't result in the full return of money until late December, are not yet known. But early indications of investor sentiment suggest that SAC is likely to lose billions over that period, exceeding the $1.68 billion yanked during the first quarter.
A number of outside investors have already telegraphed their intentions to leave. The alternative asset management unit of Blackstone Group, for instance, which at roughly $410 million in capital is SAC's largest external investor, plans to follow its first-quarter redemption with an even more substantial one this quarter, said someone familiar with its plans.
Other investors, including the money manager Ironwood Capital, which is pulling $100 million, according to someone familiar with its plans, have already made considerable redemptions. Major brokerage firms with money invested in SAC, including Morgan Stanley and HSBC, may also follow suit, said people familiar with the matter, although their final decisions are not yet clear.
All in all, SAC expects to retain "some" of its outside money, said the people familiar with its officials' thinking, but the overall figure could be dramatically reduced.
At the beginning of the year, SAC managed a total of about $15 billion. Of that, about $9 billion was internal capital, the vast majority of which belonged to founder Steven Cohen. During the first quarter redemption period, SAC officials persuaded some investors to stay on by relaxing its capital return policies and promising greater clarity on the outcome of the insider trading investigations in the months to come. Indeed, a few weeks later, it reached a $616 million settlement with the Securities and Exchange Commission to settle charges that it traded a group of stocks based on inside information.
(Read More: SAC Capital Settlement Talks Fall Apart: Source)
But after that, the picture worsened. A federal judge refused to sign off a huge portion of the SEC settlement (but later gave conditional approval). Then a long-tenured trader, Michael Steinberg, was indicted on charges of improper technology stock trading, and multiple firm leaders, including Cohen, were subpoenaed to testify before a grand jury. Cohen and the firm have steadfastly maintained that they did nothing wrong.
If SAC loses the vast majority of its outside money by year end, it may become a so-called family office—an investor of solely Cohen's own capital—by default. But people familiar with the firm officials' thinking said there are no plans to convert SAC into a family office, and that the hedge fund will continue to seek outside capital.
_By CNBC's Kate Kelly. Follow her on Twitter at @KateKellyCNBC.