Cohen Said to Plan Donating Gains From SAC Spinout as Investors Flag Risk
Steven A. Cohen plans to donate to charity any profits he makes from the former private-equity arm of the SAC Capital Advisors LP hedge fund, according to three investors.
Some limited partners and prospective investors in Siris Capital Group LLC have expressed concern that the New York-based spinout’s ties with Cohen left it vulnerable to “headline risk,” or negative news, the people said. Two former employees of SAC Capital have pleaded guilty to insider trading in the U.S. government’s five-year probe of hedge funds, and last month a technology analyst at one of the $14 billion firm’s units was accused of the crime.
Prior to the close of the first fundraising stage in September, Cohen decided against investing in the Siris fund, whose general partners are seeking $400 million, the people said. Cohen also decided to hand over his cut of future profits to charity, according to the investors. Siris had agreed at the time of the spinout to give Cohen 20 percent of its slice of profits, or carried interest, from the first fund, the investors said.
Frank Baker, co-founder of Siris, declined to comment, as did Jonathan Gasthalter, a spokesman for SAC Capital at Sard Verbinnen & Co. No allegations of wrongdoing have been levied against Cohen or SAC.
Siris, the private-capital group that spun off from SAC Capital early last year, has raised $175 million for its first buyout fund, said two of the investors, who asked not to be identified because the information isn’t public. The fund, Siris Partners II LP, will invest in technology, telecommunications and health-care companies.
Public pension plans have been sensitive to any bad press around investments they make.
“The nightmare scenario for any public pension manager is getting a call from a board member one morning because a negative story involving a fund in their portfolio is on page one,” said Jake Elmhirst, a managing director at UBS Investment Bank in New York.
Cohen’s decision not to invest in the fund has alleviated concerns about potential headline risk, one of the people said. Another possible limited partner said his investment firm wouldn’t be troubled if Cohen’s had participated in the fund because that would represent a “validation” of the Siris team.
At SAC, Cohen acted as the sole backer of deals by the private-capital group and helped Siris get started.
Siris gathered $125 million in the first phase of fundraising, according to one investor. Teachers’ Retirement System of Illinois committed $45 million in August.
Tekelec, Applied Discovery
In January, Siris led a group that bought Internet services company Tekelec (TKLC) in a deal valued at about $780 million. The firm purchased LexisNexis’s Applied Discovery unit, a provider of electronic legal services, in December.
Siris was founded by Baker, Peter Berger and Jeffrey Hendren, who have worked together for more than a decade. They were colleagues at private-equity firm Ripplewood Holdings LLC before joining SAC Capital in 2007.
SAC’s private-capital group invested in Cosmos Bank Taiwan (2837), network infrastructure company Airvana and MedQuist Holdings. The deals have produced an average of about two times invested capital, according to another person familiar with Siris.
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