Published May 21, 2013
BOSTON/NEW YORK – As federal prosecutors circle Steven A. Cohen's $15 billion hedge fund in a long-running insider trading probe, one financial adviser in Texas is so devoted to the billionaire investor that he may give him more money.
"I'm thinking about putting more money with him," said Ed Butowsky, managing director at Chapwood Capital Investment Management, who manages $1 billion in client money.
The Dallas-based adviser did not say how much his wealthy clients have invested with Cohen's SAC Capital Advisors, but said the figure tallies into the tens of millions.
"Stevie Cohen is the Michael Jordan of hedge fund managers," Butowsky said, comparing the billionaire trader's success in the markets to the feats of the legendary professional basketball star. "I'd be a fool to take out money."
With the quarterly June 3 deadline for outside investors in SAC Capital to decide whether to withdraw money from the hedge fund, it is unclear how many of Cohen's other investors share Butowsky's sentiment.
People familiar with the fund, said Cohen is bracing for additional redemption requests, especially after the revelation that federal prosecutors recently sought to compel him to testify before a grand jury in connection with the insider trading investigation of SAC Capital.
Outside investors like Butowsky and the much bigger Blackstone Group are weighing whether to bolt from SAC Capital or stick with a firm that has delivered a 25 percent annual return over its 21-year history.
Earlier this year, outside investors, who account for roughly 40 percent of the money managed by SAC Capital, notified Cohen they intend to withdraw $1.7 billion by year's end.
A spokesman for Cohen, who has not been charged with any wrongdoing and has invested roughly $8 billion of his own money in SAC Capital, declined to comment.
In recent weeks speculation has grown in the hedge fund world that if outside investors pull out too much money in the second quarter, Cohen may opt to convert his hedge fund into a so-called family office that only manages his own $8 billion investment.
With the redemption deadline just two weeks away, the main concern for Cohen, is not what relatively small investors like Butowsky's firm think about the investigation fallout, but what Blackstone Group will do. The private equity and investment firm is Cohen's biggest outside investor and at the end of 2012 had about $550 million in client money with SAC Capital.
Blackstone, which invests roughly $46 billion with some of the world's most successful hedge funds, is often seen as a bellwether for other investors. So far, the firm has not indicated what it will do, but a number of clients have told the firm they would like to redeem from SAC Capital, said a person familiar with the situation.
Some of the money invested by Blackstone in SAC Capital is pooled in investment funds that allocate money to dozens of hedge funds. Other money managed by Blackstone is in so-called separate accounts the firm oversees for pensions, foundations and wealthy individuals.
For instance, CalPERS, the California public pension fund with roughly $256 billion in assets, committed $500 million to a separately managed Blackstone account in May of last year. When asked whether the account had any exposure to SAC Capital, CalPERS spokesman Joe DeAnda said he could not provide information on portfolio holdings.
A person familiar with the hedge fund industry said most of the requests Blackstone has received from investors seeking to redeem from SAC Capital are clients with separately managed accounts like CalPERS.
Dale Connors, managing director at Watershed Investment Consultants, which advises on the $37 million that the Arapahoe County Retirement Plan has put with one of Blackstone's hedge fund of funds said he is monitoring the situation.
The administrator for the Teamsters Pension Trust Fund of Philadelphia and Vicinity, William Einhorn, declined to comment.
And James DelSignore, auditor for the Massachusetts city of Worcester, said his fund is pulling some $6 million, or half of its investment in Blackstone. The withdrawal was not due to the SAC matter but because pension funds in Massachusetts, including the state's $53 billion fund, are trying to save on fees.
SAC, which charges some of the highest fees in the industry, has delivered returns of only 6 percent this year while the Standard & Poor's Index has climbed 17 percent.
One reason why investors might choose to stay with SAC Capital despite the scandal is that Cohen has taken steps to reduce the risk of loss if the federal government were to force him to shut the fund.
Cohen has told investors he will pay any penalties and fines imposed on the firm.
(Reporting by Svea Herbst-Bayliss and Sam Forgione, with additional reporting by Katya Wachtel in New York; Editing by Matthew Goldstein and Leslie Gevirtz)