SAC's assets increased despite indictments

By Lawrence Delevingne

Wed Nov 28, 2012

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For SAC investors, contemplating a legal assault on the firm is nothing new.

   Mathew Martoma (Photo: Bloomberg)
The indictment of former SAC Capital Advisors employee Mathew Martoma and potenitial civil charges against the firm have become the talk of the hedge fund industry. Everyone seems to be asking: will investors pull out?

Not if you judge by previous experience. SAC has prospered despite six people being tied to insider trading while working at SAC and three of them pleading guilty in the past two years. Investors added as much as $1.6 billion in new capital to the flagship SAC Capital Management funds between 2010 and yearend 2011, according to an Absolute Return  analysis of assets and performance (SAC stopped accepting all new capital to the flagship funds at yearend 2011). 

Overall, SAC's firmwide assets rose to $14 billion today from $12 billion at the start of 2010.

Back then, insider trading charges were a big part of AR Magazine's cover story, " Inside SAC's shark tank." At publication in March 2010, two former SAC employees had been tied to insider trading.

One was former trader Richard Choo-Beng Lee, though his case concerned activities that took place after his departure from SAC. The other was Jonathan Hollander, a trader at SAC's CR Intrinsic Investors unit, who faced civil charges of enriching himself, friends and SAC via insider trading. Hollander settled with the U.S. Securities and Exchange Commission and Lee pled guilty.

The 2010 story showed plenty of skittishness from investors, a view that many apparently did not follow through on.

"If I were sitting on the sidelines and considering an allocation, I would want to wait until the SEC has handed down their all-clear notice on the firm," said one institutional investor familiar with SAC in the story.

Added the chief investment officer for one prominent institution: "There's zero chance in my mind that SAC can go out and gather a significant amount of institutional investor money," the person said. "If you're a plan sponsor, you're making zero dollars. So you say to yourself, 'I'm not making enough money to take this kind of career risk?'"

One fund of funds manager quoted in the 2010 story took an even harsher view. "The funds of funds know that if anyone at SAC actually gets charged, and anyone gets indicted, that the whole thing could go down in about a week--just like Galleon," the person said. "On the one hand, they want to ride the gravy train and benefit from the tremendous track record, but on the other, they acknowledge that there's too much smoke for there not to eventually be some fire."

A spokesman for SAC declined to comment for this article beyond its general statement about the new charges: "Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government's inquiry."

ISSN: 2151-1845 / CDC10004H

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