Billionaire hedge fund manager Steven A. Cohen is losing the financial support of Blackstone Group Inc, the largest outside investor in his embattled SAC Capital Advisors, which is yanking much of its client money, according to a letter reviewed by Reuters.
A pension consultant, in a May 21 letter to clients, said Blackstone has notified Cohen that it intends to "fully redeem" a significant portion of the roughly $550 million the investment firm has invested with the $15 billion hedge fund. The letter from pension consulting firm Russell Investments said Blackstone submitted its redemption notice to SAC Capital sometime before May 15 because of ongoing concerns about the insider trading investigation that continues to engulf Cohen's fund.
Blackstone's investment with SAC Capital is through several investment funds known as hedge fund of funds and also through separately managed accounts it maintains for clients. The decision to redeem from SAC Capital impacts only client money invested in its hedge fund of funds, according to the letter. It's not clear how much of the $550 million is in those hedge fund of funds and it is not clear what Blackstone is advising clients who have money in separately managed accounts that is invested with SAC Capital.
Russell did say in the address to its pension clients that Blackstone "expects to receive 100 percent of investors' capital by year-end." Russell, which manages $173 billion in assets and oversees a number of index funds, also provides advice to pensions and institutional investors on where to invest their dollars in hedge funds.
The timing of Blackstone's request to withdraw money from SAC Capital is critical because it came before the hedge fund told investors on May 17 that its co-operation with federal authorities was no longer unconditional. Soon after, news broke that federal prosecutors had issued grand jury subpoenas earlier this month to Cohen and several of his top executives, seeking their testimony about insider trading at the hedge fund.
The decision by Blackstone, which has invested with SAC Capital for at least a decade, is a big blow to the 56-year-old fund manager, who is widely regarded as one of the most successful traders of his generation. Blackstone - which manages about $46 billion in hedge fund investments for public pensions, foundations, corporations and wealthy individuals - is seen as something of a bellwether for other investors in the $2.2 trillion hedge fund industry because of its stature.
Representatives for Blackstone did not immediately respond when asked for comment on Saturday. An SAC Capital spokesman declined to comment. The letter from Russell Investments, which was reviewed by Reuters, made no mention of the subpoenas on Cohen and his executives and was sent after a Russell representative talked to a Blackstone executive about the redemption decision. The letter said Blackstone decided to submit a redemption notice to SAC Capital after reviewing the terms of a $616 million deal SAC Capital reached in March with the US Securities and Exchange Commission to settle allegations that the hedge fund's employees had engaged in insider trading in four stocks.