SAC Capital Advisors LP’s investors are set to pull out $3.5 billion Steven Cohen’s hedge fund, according to Wall Street Journal.

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Deadline For Withdrawal At SAC Capital:

With the fallout from an insider-trading probe, the hedge fund saw redemption requests from clients totaling $1.68 billion during the first quarter, representing roughly one-quarter of outside capital.

The deadline for withdrawal at SAC is set June 3.

According to the Wall Street Journal report, if the trend of such outflows continues, the total redemption from investors could touch over $5 billion. The investors expect the amount would be paid out over three quarters till end of 2013. Traders and others anticipate the resulting sale of securities will be in an orderly manner, with limited impact on the broader market.

The anticipated withdrawal includes a possible $400 million from SAC Capital’s largest outside investor The Blackstone Group L.P. (NYSE:BX). The Stamford, Conn-based Blackstone’s withdrawal is almost double of what was expected last month.

SAC Capital Steven Cohen Is One of Best:

Steven Cohen is considered one of the $2 trillion hedge fund industry’s best known and most successful traders. He has been generating an average annual return of 25 percent over the life of his 20-year-old firm.

Last week, a fifth executive at SAC Capital Advisors received a subpoena to testify before a grand jury.

The testimony could relate to the potential charges that the hedge fund faces in connection with the trades it made in July 2008 in the shares of the drug makers Elan Corporation, plc (NYSE:ELN) and Wyeth Limited (BOM:500095) (NSE:WYETH). Federal prosecutors in Manhattan have alleged that Mathew Martoma, a former portfolio manager at SAC unit CR Intrinsic Investors, received inside information about the results of an Alzheimer’s drug trial, allowing the hedge fund to record more than $275 million in profits and losses avoided.

According to the Wall Street Journal report, Steven Cohen and other SAC executives are exploring the feasibility of transforming the business into a family office, catering to the needs of wealthy family’s money without attracting any external clients. As of mid-May, SAC managed about $5.6 billion in outside money.

Steven Cohen has about $7.5 billion in SAC’s funds, while the employees hold $1.5 billion of assets. However the large redemptions from outside investors would reduce the capital and the potential profits available to the hedge fund’s employees.