The Tide Turns: SAC Gets Redemption Request From Major Investor

Tyler Durden's picture

The days of SAC's 3 and 50 fee structure appear to be rapidly coming to a close (as well as possibly the front doors to 72 Cummings Point road). In what is certainly a harbinger of capital flows from (instead of to for the first time in decades) the legendary and now infamous hedge fund, Institution Investor reports that "at least one well known investor in hedge funds has confirmed that he has requested to redeem his investment in SAC in light of recent reports of probes into the Greenwich, Connecticut-based firm. The investor, who requested anonymity, does emphasize that SAC “has the number one compliance department in the industry.” Nonetheless, recent reports swirling around the firm have led him to request to pull out his clients’ money. “We don’t want to be fickle,” says the manager. “We hate doing this. But, the government seems so intent now in getting them and there are additional SAC-related characters tainted. Some dealt with the same stocks at SAC." And so the expert network insider trading ring, first exposed by Zero Hedge nearly 2 years ago (on Part 1, Part 2 and Part 3) may claim its biggest victim, even in the absence of any criminal or civil charges against company executives: the last thing FOFs and LPs hate is uncertainty, and there is nothing like headline uncertainty that today, in one week, or one year, their capital may be permanently frozen courtesy of a few men in gray suits and a search warrant, which not even the best paid Gerson Lehrman consultant could have foreseen.

From II:

Over the years, investors in SAC have dismissed allegations and rumors related to SAC as a witch hunt against one of the most successful investors of all-time and deemed them to be not credible. And although the investors have no evidence—or reason to believe—current allegations are true, it does appear they are starting to get nervous.

“I don’t blame them [for redeeming],” says a hedge fund manager who does not have money with SAC. “This is a hot topic.”
But, again, one firm redeeming does not make a trend.

And a big portion of SAC’s nearly $14 billion in assets is internal money, which obviously is not leaving. Also, sources say the firm has brought in about $1.5 billion in new money since mid-2000 while very little left the firm.

“They will probably get redemptions,” says another SAC investor. “But, we will sit tight until there is a real reason to do anything. It is all noise.”

To their credit, in recent months hedge fund investors in general have displayed a new concern for, and reluctance to invest with, firms that have been the focus of government investigations.

Just last week, FrontPoint Partners announced it would shut down most of its funds by the end of the month after acknowledging it had received a rash of redemptions from investors.

The firm has had to defend its reputation since late last year when published leaks linked portfolio manager Joseph Skowron to the arrest of a French doctor who was accused of disclosing insider information about a clinical drug trial. Frontpoint put Skowron on leave and got rid of his entire health care team. Alas, in April the government arrested and charged him with insider-trading.
Late last year, two other hedge funds — Level Global Investors and Loch Capital — closed down after they were raided by federal agents investigating the widening insider trading scandal on Wall Street.

In February, it was reported a third hedge fund firm raided — Diamondback Capital Management LLC — received redemption requests equaling nearly 10 percent of its capital. Last week, Bloomberg reported that former Diamondback portfolio manager Anthony Scolaro, pleaded guilty to insider-trading charges back in November, citing a plea agreement unsealed earlier this month in Manhattan federal court.

As a reminder it was also Zero Hedge which correctly predicted that the recent spike of allegations against SAC diaspora funds, even before the expert network bust news hit, was aimed at none other than Blue Eyes himself.

h/t Paolo

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Manthong's picture

SAC getting the sack.

GeneMarchbanks's picture

I bet Tyler will be posting this story with a different hedge fund name over and over and over for like... 4-5 more years. At least.

firstdivision's picture

While I do think that there is plenty of shady trades that were executed at SAC (sorry, but that midas touch was a little too golden IMO), I do believe that SAC is being unfaily singled out.  It is more of an industry problem, than a firm problem.  Washington just wants to let one party swing at the end of a rope (in the same way LEH was left to hang themselves), while the others continue to opporate with impunity, but with less competion now.  Washington will tout the destruction of SAC as a warning to other firms, when in reality it was just a way to have capital move to a fund that is more friendly with Washington.  I guess Steve forgot to enlarge his political donations as other managers did. 

Careless Whisper's picture

A Senator who won an award from the National Whistleblower Center is someone you might want to take serious.


Coldfire's picture

SAC “has the number one compliance department in the industry.”


andrew123's picture

Tyler, any idea how sac did last quarter, or what their net long exposure is?

spanish inquisition's picture

Been following the fraud at here and at Deep Capture the last couple of years. Looks to me like the corruption rabbit hole is an endless loop shaped like an 8.

Smiddywesson's picture

Maybe SAC was getting their trades from Congress and they forgot to tip

Growyourownfood's picture

The whole industry has known for a decade how SAC makes their money. It was regularly discussed and joked about. No surprise here

Cvillian's picture

+1.   It would be funny if it weren't so true

swissbene's picture

congrats to ZH for helping to facilitate change.  hopefully more pressure will build against antisocial criminals [alleged].

an earlier SAC thread contained sentiment that corruption is too large/entrenched to expect any change.  such belief is essentially self fulfilling -- so potentially dangerous.

this example reinforces the necessity and efficacy of civic engagement.  many thanks for the important reporting and discussion here.

for reference:

PulauHantu29's picture

Watch when money markets begin freezing assets again:

"Marketwatch is reporting that money market fund Primary Fund  (RFIXX) is freezing redemptions for seven days starting Tuesday, September 16.  Its $785 million holding of Lehman Brothers Holdings debt has been valued at zero. As of 4 p.m., the value of the fund's share is 97 cents.  Presumably, investors who have money in the fund will not be able to withdraw it until the freeze has been lifted.  It's unclear what the net asset value will be at that point.  In most cases, the parent company of the fund injects cash or assets to bring the value back to $1 per share. "

My assets were actually "frozen" for several weeks. I never trusted any money market funds again. Once burnt ok...twice is to be a Fool!

bugs_'s picture

major investor gets the word on the qt