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
|| Mathew Martoma (Photo:
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
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."