Steven A Cohen may be walking toward the exit of his fabled hedge-fund empire as another $1 billion in capital redemptions came into play for the third quarter on Friday.
Among the storm clouds: Cohen’s SAC Capital Advisors is wrestling with a federal indictment accusing it of running a criminal insider-trading network. The Securities and Exchange Commission is charging Cohen with failing to supervise employees allegedly engaged in insider trading. And $616 million has been extracted from his fund in two regulatory settlements.
SAC is certainly on the brink.
“I think in the current regulatory environment, any allegation of insider trading — much less a suit or enforcement action by the SEC — is the death knell for any advisory group,” said Michael Minces, general counsel at Blue River Partners, a compliance consulting firm that serves hedge funds.
“The world finds out after the fact how those allegations play out, but the allegations alone are pretty much the end of any firm,” he added, referring to SAC.
The fallout from the government indictment has badly imperiled SAC. Investors have already pulled billions.
And this week saw the third quarter redemption deadline that permits outside investors their money — and as much as $1 billion not “locked up” was in play, according to sources.
SAC is reportedly not going to speed up payouts on the billions of dollars earmarked for all withdrawals and may take years to end, sources says.
Minces at Blue River Partners said it wouldn’t surprise him to see a huge portion pulled. “The trend has already been happening, and I would expect it to continue to exacerbate,” he said.
The flight of more capital and an employee bloodbath under way are rocking the once-exclusive Stamford, Conn.-based shop.
Withdrawals of up to $1 billion would be a major hit on the fund’s already shaky $14 billion total assets under management ($9 billion of that is Cohen’s personal money), and a mass exodus among his highly compensated band of traders and analysts could shrink the firm from 1,000 to fewer than 100 employees, The Post has learned.
The week marked another turning point in the fortunes of the tycoon and art aficionado Cohen, 57. (He famously paid $155 million for a Picasso this summer — that on top of a cool $60 million for a beach house in the Hamptons.)
Cohen has much of his own personal wealth tied up in SAC. If he remains in the game, it is likely he will be managing that as a “family office,” with most of his workers gone, according to several people who spoke to The Post.
Recruiters and people familiar with SAC say the firm could continue in such a business with less than 10 percent of its current head count. Minces said SAC could do business as a trimmed-down operation with fewer than 100 employees.
Alhough SAC has upped offers of year-end bonuses to retain key talent, a flurry of SAC résumés have been dispatched and private meetings of nervous employees with recruiters held. “We are fielding calls,” said New York-based hedge-fund recruiter Robin Judson of SAC employees.
But the news is mixed. “Some of these people will be able to find other jobs,” Judson said. “However, we are seeing a number of funds afraid to talk to employees of SAC. And the question is, how long will that fear stay in place? I am sure some other places will jump at the opportunity to pick up great talent.”
Some of the biggest hitters are already gone. These include portfolio managers and traders who made millions. This month, for example, SAC shuttered its affiliated Parameter Capital run by Glenn Shapiro and Anil Stevens.
SAC did not return calls for comment.
SAC was founded in 1992 with $25 million. And as it rapidly accumulated more capital — and charged investors some of the industry’s steepest fees — it posted eye-popping yearly returns of 30 percent.
But these days, that seems like a very, very long time ago.