Hedge Fund Regulation Is Backfiring: SAC Capital Edition

Government Regulation
Government Regulation

Is SAC Capital going to escape hedge fund regulation?

On Tuesday we learned that George Soros was returning all of the capital of outside investors to his fund, following a path laid down by legendary investors like Stanley Druckenmiller and Carl Icahn.

By closing their funds to outside investors, these managers will be able to escape attempts to regulate them. They won't be classified as hedge funds anymore. Despite their billions of dollars under management, they'll simply be private investors or family funds.

Today we learn that Steve Cohen, the founder of SAC Capital, is closing his flagship fund to outside investors. He hasn't yet decided to refund their capital. For now he's just not allowing them to contribute more. But people familiar with the company believe that this could be the first move to eliminating outside investors altogether.

"Steve could run SAC with his own money. Add in a couple of his top guys, and there's really no need for outside capital at all," one person at the fund said. (The person was not authorized to speak to NetNet and requested anonymity.)

This is another example of hedge fund regulation backfiring. Instead of providing more transparency, Dodd-Frank is driving hedge funds deeper into the shadows. It's unintended consequences gone wild.


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