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Hedge fund SAC under scrutiny as news breaks of the first investigation-driven redemption

Tuesday, May 31, 2011

Steve Cohen
From Kirsten Bischoff, Opalesque New York:

The reality is a multi-billion dollar mega fund such as Steve Cohen’s SAC Capital is going to see a certain level of inflows and outflows during the course of any given year, so news of a single redemption would not normally hit the wires with the speed at which it did on Tuesday. However, Institutional Investor, has apparently identified one SAC investor who recently submitted a redemption request and broke the story that this particular redemption is driven by the fact that Steve Cohen and his firm have become Moby Dick to the SEC’s Ahab.

While the redeeming investor pointed out to the publication that SAC has a world-class compliance department, they did say, “We don’t want to be fickle,” says the manager. “We hate doing this. But, the government seems so intent now in getting them and there are additional SAC-related characters tainted. Some dealt with the same stocks at SAC.” Of course, one also has to try and determine the motives for that investor (who the publication termed as "well-known") for speaking with the press about the redemption.

SAC, has not as a firm (nor has Steve Cohen) been charged of any wrongdoings by the US regulatory agency, but it is clear that after two former employees were linked to the most recent Wall Street insider trading investigation, SEC investigators are working hard to connect the rest of the firm to that type of activity.

According to reports, SAC is up approximately 8% (through the end of last month), and has grown through inflows by $1.5bn over the past year. As pointed out by Fortune magazine, Cohen and his employees are the investors behind almost half the asset base, so there is a certain amount of built in stability should the fund face further future redemptions driven by investor-worries over the attentions of the SEC.

The apparently epic hunt unfolding by the SEC should make SAC the summer story to watch, and it will be interesting to keep an eye out for how the word “redemption” is used in this story going forward. Will it be used only to define further formal requests to return assets to investors? Or to describe the continued outperformance by the firm’s portfolio teams?

What do you think?

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