Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

SAC investors begin to eye the door

May 31, 2011: 7:37 AM ET

The government investigation of Steve Cohen's firm has reportedly prompted a well-known investor to put in a redemption request. Will more follow?

FORTUNE -- Last week I wrote that investors were standing by their man Steve Cohen, despite the fact that government investigators and a prominent Congressman were probing his hedge fund firm, SAC Capital.

While there's still no wave of redemptions, Institutional Investor broke the news that an investor wants out of SAC because,"the government seems so intent now in getting [SAC] and there are additional SAC-related characters tainted," the anonymous investor told the magazine.

The investor, whom the publication called "well known," added that SAC has the best compliance in the industry. But that was not not enough to assuage his fears.

It's important to remember that neither Steve Cohen nor SAC have been charged with any wrongdoing. Even so, politicians and regulators are turning up the heat under Cohen, the man that Reuters called the government's Moby Dick, and who Senator Charles Grassley worries may foster a culture that encourages insider trading. The Financial Industry Regulatory Authority (FINRA) provided Senator Grassley's office and the Securities and Exchange Commission with 20 instances when employees at SAC may have traded on inside informationand representatives from SAC met with Congressional representatives this month to discuss the investigation.

Similar insider trading investigations and allegations have sunk hedge funds run by Level Global InvestorsLoch Capital Management, and FrontPoint Partners; but SAC has so far held up well, as Cohen and his top lieutenants have held meetings and conference calls with investors to discuss the probe. Representatives for the firm have reiterated time and again that it is fully cooperating with the government.

Also keeping many investors in the fund is the fact that the $14 billion firm is up about 8% through the end of April, and the firm has taken in about $1.5 billion over the last year, according to people familiar with the firm's finances. Moreover, Cohen and his employees make up about half of the asset base, which helps keeps the base of capital stable.

Right now the limited partner who spoke with Institutional Investor is an outlier. But as one investment consultant pointed out to me, investor psychology can be herd-like. If a fund loses a series of investors, or an investor who is considered smart money, it can cause a stampede.

Join the Conversation
About This Author
Katie Benner
Katie Benner
Writer, Fortune

Katie Benner joined Fortune in October 2006. As a writer for the magazine and the website, she focuses on Wall Street and the economy. Prior to joining Fortune, Benner worked at TheStreet.com, CNNMoney, and as a freelancer in Beijing for China International Business, the South China Morning Post, and as a columnist for Beijing Review. She has a B.A. in English from Bowdoin College.

Email Katie
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.