SAC Capital's New Problem: Underperforming the Market

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Steven A. Cohen

Amid a government probe on insider trading that threatens potential criminal charges against founder Steve Cohen, SAC Capital is fighting battles on many fronts, including the markets.

The firm's flagship long-short stock fund was up just 70 basis points, or 0.7 percent, last month, said people familiar with the matter. That means it underperformed both the broader market and was essentially in line with other hedge funds.

For the year through May, SAC is up about 6 percent—far short of the Standard & Poors Index, which is up 14 percent, and a bit better than the average hedge fund, which has seen a rise of about 5 percent.

Though average for the industry, those results fall short of the usual mark for SAC, which has outshined its peers by a huge margin in recent years. Since it opened in the early '90s, SAC's compounded annual return rate has been over 30 percent.

(Read More: SAC Capital: Who's Sticking, Who's Going)

SAC's year-to-date numbers could simply be a reflection of bad luck in the markets, where the firm deals in 2,000 to 3,000 stocks at any given time, taking both bullish and bearish positions.

In the middle of May (a month in which the S&P rose 2 percent overall but lost ground in the final few days of trading) SAC was net long the market by about 4 percent, according to someone with knowledge of its strategy. The fund also tends to run on high leverage—up to four times its capital base, this person added—which can amplify both gains and losses.

But the trading probe, initiated by federal prosecutors in the late 2000s, has implicated current and former SAC traders, and could theoretically result in Cohen himself being charged this summer. The stress is no doubt weighing on the hedge fund's more than 130 portfolio managers as they try to stay focused.

(Read More: Judge Sets Nov. 4 Trading Trial for SAC's Martoma)

That pressure is also affecting the firm's external investors, who accounted for about $6 billion of SAC's $15 billion in total assets at the beginning of the year. In a sign of growing concern about its future, outside investors redeemed billions of dollars in assets on Monday, according to someone familiar with the matter. Those withdrawals, which will occur over the course of several quarters, followed redemptions of $1.7 billion during the first quarter.

(Read More: Wall Street Still Waiting on SAC Redemption Numbers)

SAC officials have refused to comment on the specific redemption numbers, other than to say in an internal email that though they were "significant," the firm does not plan substantial layoffs or a conversion into a family office managing only internal capital.

By CNBC's Kate Kelly. Follow her on Twitter at @KateKellyCNBC.