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Blackstone Group LP
The SAC Capital Advisors withdrawal-deadline Valentine’s Day surprise is here: Investors are taking $1.68 billion out of the fund, according to Bloomberg News. The figure is much higher than the $1 billion that had been expected, a strong sign investors are worried about the ongoing insider-trading investigation circling hedge fund SAC Capital. And, in an indication that leverage is shifting away from the fund and toward its investors, SAC agreed to give those who have not yet redeemed their money more time to decide whether they’d like to stay or go.
The hedge fund investment arm of Blackstone Group (BX), the private equity firm, negotiated an agreement that grants all investors in Steven Cohen’s SAC Capital three more months before they must notify the firm that they’d like to withdraw all their money by the end of the year. Because of the fund’s quarterly redemption schedule, investors would have had to do this by the end of the day yesterday, and the money would have then come out 25 percent per quarter through the rest of the year. Now they have until the middle of May to do so, and could withdraw a third at a time for the remaining three quarters. As one of SAC’s largest investors ($550 million), Blackstone had the heft to exact such concessions, as it and other investors wait anxiously to see how the government’s insider-trading probe involving SAC progresses.
In spite of the negative headlines, not to mention the distraction of knowing they’re at the center of a multi-agency government investigation, SAC has been performing well, returning 13 percent in its flagship fund in 2012 and close to 30 percent over the life of the fund. But the uncertainty surrounding the investigation poses reputation risk for investors and could affect the future of the firm. For those who would like to continue to reap SAC’s returns, the added flexibility gives them the option of doing so for a little longer, rather than pulling out now and risking not being able to get back in later.
With the agreement, Blackstone “successfully preserved flexibility for our clients by extending our decision timeline,” Blackstone said in a statement. “We will use this period of time to evaluate all additional information which becomes available.”
What, if anything, will change in the next three months is unclear. The case against former SAC portfolio manager Mathew Martoma is progressing toward a trial; Martoma pleaded not guilty. Meanwhile, government investigators are trying to build a case against current SAC portfolio manager Michael Steinberg, who has been on leave from the firm since September, collecting a minimal salary. Steinberg’s attorney says he has not done anything wrong. SAC Capital is waiting to see whether the U.S. Securities and Exchange Commission will bring civil charges against the fund, after receiving a Wells notice in November. Through a spokesman, Cohen and SAC say they have acted appropriately.