Stevie, SAC and that ticking redemption clock

January 11, 2013

By Matthew Goldstein and Svea Herbst-Bayliss

The WSJ is out today with a big story saying Stevie Cohen and SAC Capital are bracing for up to $1 billion in redemptions, or roughly 16 percent of the $6.3 billion it manages for outside investors. That’s a lot of money but sources are telling us redemptions will likely come in lower than that—think more in the $500 million range.

And more important, no matter what the figure is, don’t look for it to put much crimp in Cohen’s operation.

The deadline for submitting redemptions is Feb. 15, so there is still plenty of time for outside investors make a decision about sticking around or leaving. And even if an investor puts in a redemption notice now, those requests to withdraw money can get pulled at the last minute if the investor has a change of heart.

So far, the most notable redemption request comes from Titan Advisors, the investment fund run by George Fox, a friend of Cohen. Titan, as we noted has been pulling money from big funds for a while, so the decision may be motivated as much by the latest headlines in the insider trading investigation as much as a strategic shift by the investment firm.

Titan, which had been with Cohen for many years, is believed to have had between $75 million and $150 million with SAC Capital, sources say.  Titan hasn’t yet sent investors  a year end letter formally explaining its rationale for bailing on SAC Capital.

Several people we spoke to say as long as SAC Capital’s biggest outside investor, Blackstone Group, continues to stand behind the billionaire hedge fund manager, total redemptions will likely come in well below that $1 billion figure. Blackstone has $550 million with SAC Capital and it too has been with Cohen’s firm for years. Up until now, Blackstone has told its investors it sees no reason to redeem from SAC Capital.

An SAC Capital spokesman said: “It is far too early to speculate about redemptions and we do not expect redemptions to have a significant impact on our funds.”

One investor with SAC Capital said as long as Cohen sticks with his plan of indemnifying investors against fines and restitution claims, he’s more than happy to reap the benefits of the 12.1 percent return Cohen’s fund generated last year, after taking out fees. And, as everyone knows, those fees are amongst the heftiest in the $2 trillion hedge fund industry.

The investor points out that SAC Capital on a gross basis before fees, generated close to a 27 percent return. And when you consider that roughly $8 billion of the money managed by SAC Capital is Cohen’s own money, that means he made close to $2 billion. (Remember, Cohen doesn’t charge himself a fee).

In fact, as we previously mentioned on UF, that’s a big reason why Cohen has no incentive to avoid the spotlight, give back all of that investor money and become a family office. The economics of becoming a family office don’t make sense for Cohen because with his “3 and 50” fee structure–3 % asset fee and 50 % incentive fee—his investors are supporting his overhead and effectively let him pay others to manage his money.

It’s all something to consider as the headlines about potential SAC Capital redemptions roll in over the next few weeks.


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