SAC-linked Parameter fund closes as shrinkage sets in

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An affiliated fund of Steven A. Cohen's SAC Capital Advisors has shut down as the $14 billion hedge fund begins to shrink in the wake of a criminal indictment filed against it in July, according to two people familiar with the unit's closure.

Parameter Capital Management, which had managed money for SAC since 2010, traded mainly financial stocks. The team was run by portfolio managers Glenn Shapiro and Anil Stevens. Stevens is leaving to launch his own fund, according to one of the sources.

The sources said the decision to close Parameter last week had been planned before federal prosecutors charged Cohen's firm in a five-count indictment with fostering a culture where employees flouted the law and were encouraged to tap their personal networks for inside information about publicly traded companies.

(Read more: SAC to keep managing money while facing indictment)

The unit's returns were roughly flat this year, according to the sources.

Tom Conheeney, SAC Capital's president, sent an email to the firm's employees on Saturday, in response to several news reports about the future of SAC's business and structure. In the email, according to one of the sources, Conheeney said the firm will have as much capital to invest at year's end as it had in 2009.

Stevens, who has been planning to start his own firm for some time, is taking most of the Parameter team with him, according to one of the sources.

Shapiro's plans are unknown.

Both people familiar with Parameter's closure were not authorized to speak publicly about SAC. It was unclear how much money Stevens and Shapiro oversaw for Cohen's hedge fund, which is in the process of returning $5 billion in outside investor money by the end of the year.

Parameter is mentioned in regulatory filings as one of nine affiliated entities that manage money for SAC Capital, the hedge fund Cohen launched 21 years ago with $25 million.

(Read more: SEC case against SAC's Cohen stayed by judge)

In the aftermath of the federal indictment, Cohen and his top lieutenants are taking steps to reassure SAC Capital's roughly 1,000 employees that the future of the fund is not in jeopardy.

In his email to employees, Conheeney described as inaccurate some media reports about how SAC Capital will need to get much smaller as it returns investor money and may collapse or streamline businesses.

On Friday, a judge approved an agreement between the Connecticut-based fund and federal prosecutors to allow the firm to continue to operate while the criminal case against it proceeds. SAC has pleaded not guilty.

Parameter's shuttering comes as about a dozen sales and marketing people were let go by Cohen's hedge fund over the past few weeks.

(Read more: Victim of Ponzi-schemer Dreier to get his Warhols, Rothkos)

"It is not that surprising that SAC would lay off marketing staff. Under the circumstances, it is unlikely that SAC would try to raise new capital now," said Robin Judson, a recruiter who works with hedge funds.

Investors in Cohen's fund, who have already pulled several billion dollars this year, have until the end of this week to submit a redemption request to receive a return of their capital by the end of the year.

Shapiro and Stevens rejoined SAC to run Parameter in 2010 after spending time trading stocks for Chicago-based hedge fund Balyasny Asset Management. Both had worked for SAC for a number of years prior to joining Balyasny.

—By Reuters.