Blackstone seen sticking with SAC despite insider trading probe
One of hedge fund billionaire Steven A. Cohen's largest outside investors, private equity firm Blackstone Group LP, appears inclined to keep its money with his SAC Capital Advisors, even as the U.S. government scrutinizes the fund in its ongoing insider trading probe.
Three sources said the asset management arm of Blackstone , which has $550 million invested with SAC Capital, is in no rush to redeem money from the Stamford, Connecticut-based hedge fund. Blackstone has had at least three discussions with the $14 billion hedge fund's executives about the insider trading investigation and talked to its own investors, which include state pension funds, endowments and wealthy individuals.
Seven current and former SAC employees have been charged or implicated in the insider trading probe into hedge funds and their sources of trading tips, and the firm itself - along with the 56-year-old Cohen - has been drawing renewed scrutiny.
"I am unaware of any representation by Blackstone that they are pulling out," said Robert Klausner, a Florida attorney who represents a pension fund from Louisiana that is an investor in a Blackstone fund with money at SAC Capital.
A Blackstone spokesman and an SAC Capital spokesman both declined to comment.
Outside investors in SAC Capital, who can redeem four times a year, have until the middle of February to decide whether to pull out some money. So officials at Blackstone, which accounts for about 9 percent of the outside money invested in SAC Capital, could still change their view on the hedge fund in the event of a new development in the insider trading investigation.
Already Titan Advisors LLC has notified SAC Capital it intends to pull money from the hedge fund. Titan, which invests $3 billion of client money in more than 20 hedge funds, is one of Cohen's longest tenured outside investors.
It's not known how much money Titan, which did not return a request for comment, has invested with SAC Capital.
The question of investor redemptions from SAC Capital has come up in the wake of charges brought last month by U.S. authorities against a former SAC Capital portfolio manager, Mathew Martoma. He is accused of using inside information to generate profits and avoid losses totaling $276 million in shares of two drug stocks, Elan Corp PLC and Wyeth.
In a sign U.S. authorities are ratcheting up the pressure on Cohen, the Securities and Exchange Commission recently warned SAC Capital that the firm could face civil charges over the Martoma matter. Federal authorities also have expanded their investigation to look into trading by the hedge fund in shares of Weight Watchers International Inc and biotech company InterMune Inc .
Blackstone, whose chairman and chief executive is financier Stephen Schwarzman, is seen by some as something of a bellwether investor in the $2 trillion hedge fund industry because its popular so-called hedge fund of funds invests with more than four dozen hedge funds, including SAC Capital, Pershing Square Capital Management, Elliott Management and DE Shaw & Co, according to people familiar with the private equity firm's asset management business.
Blackstone's $550 million investment in SAC Capital is a big slice of the $6.3 billion in assets that SAC Capital manages for its outside investors, said sources familiar with SAC Capital and Blackstone. Roughly 55 percent of the dollars invested in SAC Capital is Cohen's own personal fortune and money from his employees.
Don Steinbrugge, chairman of Agecroft Partners, a hedge fund consulting and marketing firm, said most institutional investors that have money with SAC Capital will make their own decision on whether to remain with the fund. But he said some investors "will look to leaders in the industry to help guide them."
Klausner said an investment adviser hired by the Louisiana pension fund he represents said it is comfortable with Blackstone's decision to stay with SAC Capital after doing its own research into the matter. Klausner said the decision by SAC Capital to pick up the tab for any legal costs and fines that might be levied by authorities against the hedge fund, gave his pension client comfort.
"The indemnification was a huge deal and the fact that the principals of SAC own 55 percent of the firm," he said.
Several other Blackstone investors said they also are comfortable with whatever decision the investment firm makes about keeping money in SAC Capital.
William Einhorn, administrator for the Teamsters Pension Trust Fund of Philadelphia and Vicinity, which has money in a Blackstone fund that invests with SAC Capital, said he last had a communication with Blackstone about the investigation two weeks ago and he is not telling the investment firm what to do.
"I am relying on the actions of our fiduciary," Einhorn said.
He and other Blackstone investors said they generally have been satisfied with the performance of Blackstone's hedge fund offerings.
So far this year one of the Blackstone funds that invests with SAC Capital, the $4.3 billion BPIF Partners Non-Taxable fund, is up about 7 percent, according to an investor source. By comparison, hedge funds on average are up 5 percent for the year and SAC Capital's flagship fund is up a little over 10 percent.
Still, the decision by Titan to pull money out, which was first reported by The Wall Street Journal, was a little surprising to some given that the investment firm told its investors in a September 2012 investment letter that SAC Capital was one of its "biggest gainers" in the third quarter.
And in a December 2010 investor letter, Titan told its investors it was not redeeming from SAC Capital after determining that neither the firm nor its principals were "the target of the investigations." At the time, Titan told investors it would continue to "closely monitor" the matter.
Marisel Lieberman, assistant director for FIU Foundation Inc, which invests in the Titan Masters International Fund, said she was recently informed by Titan that it "has since fully redeemed out of SAC funds."
A copy of the Titan letter informing investors of the decision to redeem from SAC Capital could not be obtained.
(Reporting By Matthew Goldstein; additional reporting by Sam Forgione; Editing by Martin Howell and Steve Orlofsky)