July 25 (Bloomberg) -- SAC Capital Advisors LLC, the hedge- fund manager run by Steven Cohen, has been approached by investors interested in buying a stake in the firm, a person with knowledge of the discussions said.

SAC is considering the move, said the person, who declined to be identified because the talks are private. Any sale would be limited to less than 20 percent of the Stamford, Connecticut- based company, which oversees $14 billion.

Hedge funds have sold stakes to raise permanent capital and profit from the industry's growth in assets, which more than doubled to $1.7 trillion in the past five years. D.E. Shaw & Co., the New York-based firm founded by David Shaw, sold 20 percent to Lehman Brothers Holdings Inc. in March. Avenue Capital Group, run by Marc Lasry in New York, sold almost 20 percent to Morgan Stanley in October.

``You arguably could be at a market peak with institutions awash with cash, and any smart seller wants to sell into that,'' said William Grayson, president of Falcon Point Capital LLC, a San Francisco-based hedge-fund manager.

Cohen declined through a spokesman to comment on the discussions, which were reported yesterday by the Financial Times.

Potential investors may include securities firms and foreigners with big pools of capital, Aaron Dorr, a managing director at Putnam Lovell in New York, a unit of Jefferies Group Inc., said today in an interview.

``These transactions continue to be driven by investment banks and large foreign investors,'' particularly from Asia and the Middle East, Dorr said.

Trend Setters

Blackstone Group LP, the New York-based buyout firm that went public in June, sold a $3 billion stake to China's state investment company in conjunction with the initial public offering. In December, Nomura Holdings Inc., Japan's biggest securities firm, bought a 15 percent stake in Fortress Investment Group LLC, a New York-based manager of private equity and hedge funds, for $888 million.

The 51-year-old Cohen, who started SAC in 1992, has produced returns averaging more than 40 percent a year. He was originally known as a rapid-fire stock trader. As assets under management have grown, he's held positions for longer and now trades many other strategies beyond equities.

SAC Capital's stock holdings include New York-based Six Flags Inc., the second-largest U.S. theme-park operator, and pharmaceutical developer United Therapeutics Corp. of Silver Spring, Maryland, according to filings this month with the U.S. Securities and Exchange Commission.

Top Earner

Cohen ranked among the hedge fund industry's top 10 moneymakers last year, earning about $900 million, according to a report published by Institutional Investor's Alpha magazine. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

New York-based securities firms such as Lehman and Morgan Stanley are buying hedge funds to win more business from clients who pay fees averaging 2 percent of assets and 20 percent of investment profits. The loosely regulated investment pools, which can bet on falling as well as rising market prices, attracted $58.7 billion in the second quarter, data compiled by Chicago-based Hedge Fund Research Inc. show.

Morgan Stanley, the world's second-biggest securities firm, has invested in hedge funds including Oxhead Capital Management LLC, FrontPoint Partners LLC, Lansdowne Partners LP and Brookville Capital Management since mid-2006.

JPMorgan Chase & Co. overtook Goldman Sachs Group Inc. last year as the largest U.S. hedge-fund manager, according to survey released in March by Absolute Return magazine. New York-based JPMorgan managed $34 billion as of Dec. 31, including $20 billion at Highbridge Capital Management LLC, which it acquired in 2004. Goldman, based in New York, had $32.5 billion in hedge funds, while Bridgewater Associates Inc. of Westport, Connecticut, had $30.2 billion.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Jenny Strasburg in New York at jstrasburg@bloomberg.net.

Last Updated: July 25, 2007 13:20 EDT