Scrutiny by prosecutors hasn't deterred investors in Steven A. Cohen's hedge fund
Investors have put $250 million into the main hedge fund of Steven A. Cohen's SAC Capital Advisors this year, even as prosecutors investigate accounts tied to two former portfolio managers who pleaded guilty to insider trading, according to two people with knowledge of the matter. The fund has attracted a net $1.5 billion since mid-2010. The new commitments don't include money put in by Cohen and employees of the $14 billion firm, say the two people. The fund has gained 9 percent this year through May.
"Their investors are voting with their dollars that they have confidence in SAC's compliance procedures," says Donald A. Steinbrugge, managing partner of Agecroft Partners, a firm based in Richmond, Va., that advises hedge funds and investors. A spokesman for Stamford (Conn.)-based SAC, Jonathan Gasthalter, declined to comment.
At other funds, government scrutiny has led to large redemptions or closures. In November, FBI agents from New York and Boston raided the offices of Level Global Investors and Diamondback Capital Management, firms founded by SAC alumni. Agents also searched the offices of Loch Capital Management in Boston and New York-based Barai Capital Management. Diamondback investors have pulled more than $1 billion, or almost a quarter of the firm's assets, since the raid. The other firms have closed. Barai Capital founder Samir Barai pleaded guilty on May 28 to securities fraud and other charges.
U.S. prosecutors are investigating accounts at SAC tied to Noah Freeman and Donald Longueuil, former portfolio managers who pleaded guilty earlier this year to federal insider-trading allegations. Longueuil worked at SAC from July 2008 to July 2010, Freeman from June 2008 to January 2010. SAC has said both were fired for poor performance. The investigation is part of an insider-trading probe that has ensnared hedge funds, corporate executives, and so-called expert network firms. No allegations of wrongdoing by SAC or Cohen have been made.
In a Mar. 24 letter filed in Manhattan federal court, prosecutors said they had recovered records from SAC and listed documents tied to the "Cohen Account" that they made available to defense lawyers. The Cohen Account, a portfolio managed by Cohen, uses the best trading ideas unearthed by the 100 teams at SAC. Portfolio managers and analysts submit their stock picks to Cohen and his team. If Cohen uses them in his account, and they make money, the traders get paid for their ideas.
Cohen told clients in May that SAC is considering closing its main fund to new investments. Cohen, who has averaged annual gains of 30 percent, kept the fund closed for its first 13 years. SAC plans to open a fund specializing in quantitative trading in the third quarter—its first new fund in six years, according to two people familiar with the decision.
The bottom line: Cohen's flagship hedge fund has pulled in $250 million this year despite attracting scrutiny amid a broad insider-trading investigation.