SAC Capital Advisors may consider reducing staff, closing offices and downsizing trading operations, as outside investors pull the bulk of their money amid an ongoing insider trading probe.
Svea Herbst-Bayliss and Katya Wachtel of Reuters report that the hedge fund might cut staff from the present level of 950. Some of the existing employees at SAC Capital are reported to have approached headhunters for new openings.
Earlier it was reported that Steven Cohen’s hedge fund might see investors pulling out $3.5 billion, on top of the $1.68 billion redemptions made during the first quarter. The total redemption is expected to touch $5 billion if the trend of such outflows continues.
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, four senior executives of the hedge fund received subpoenas to testify before a grand jury as part of the government’s efforts to intensify investigations into insider trading at the firm. 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).
SAC Capital Funds:
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.
Some of the possible areas where reduction in headcount could be considered include marketing and business development, where the hedge fund currently employs about three dozen people. Finance and accounting departments could see some downsizing from the current strength of 130 people.
The hedge fund employs about 400 people for its investment advisory functions, covering trading and research. This division employs about 115 portfolio managers to oversee trading at the hedge fund.
The hedge fund has been garnering a substantial fee from managing outside investors’ money, by charging 3 percent towards asset management fee and charging 50 percent of the trading profits.
However some analysts feel the hedge fund might be able to retain compensation for the top staff, if the firm maintains its above-average returns.
SAC Capital Advisors LP’s Home Office In Stamford:
The Reuters journalists report that SAC Capital Advisors LP’s office in Stamford, Connecticut would continue to be held by the hedge fund.
Speculations are rife that Steven Cohen might convert to a family office to manage just his own money, which would not require registration with the Securities Exchange Commission.
In 2011, billionaire investor George Soros converted his fund to a family office, as a result of new hedge fund regulation.