Economy & Finance

For two hedge funds, SAC redemptions hit close to home

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NEW YORK (Reuters) – Two small investment firms that manage money for SAC Capital Advisors have a lot at stake, as billionaire investor Steven A. Cohen moves to return about $4 billion to his outside investors.

The firms, Adams Hill Capital and Scopus Asset Management, are listed on regulatory filings as other advisers to an SAC Capital portfolio, meaning each manages a dedicated pool of money for Cohen’s hedge fund.

Hedge fund industry experts said as SAC Capital returns money to investors over the course of the year, it could force Cohen to cut the amount of money each firm is given to manage.

There has been much speculation in the $2.2 trillion industry about how Cohen and his firm will deal with requests by investors to redeem their money in the wake of an intensifying insider-trading investigation and the impact a smaller SAC Capital will have on Wall Street firms that do business with it.

People familiar with the fund said outside investors asked to get back up to $4 billion in the second quarter, on top of the $1.7 billion in first quarter redemption requests.

The redemptions mean that SAC Capital, which will return the money year’s end, will shrink in size by about 45 percent, leaving the firm managing mainly $8 billion of Cohen’s personal fortune and $530 million invested with SAC Re, a reinsurance firm the hedge funds established last year.

Representatives for Adams Hill and Scopus declined to comment. An SAC Capital spokesman also declined to comment.

It is not uncommon for large hedge funds like SAC Capital to employ other advisers, also known as sub-advisers, to manage some of a firm’s money, especially if a manager is impressed with the outside firm’s track record.

Boris Onefater, who runs hedge fund due diligence and advisory firm Constellation Investment Consulting, said some managers use sub-advisers to bolster areas of trading where a firm is either weak or looking to supplement. He said it is too soon to predict what SAC Capital will do, noting Cohen could keep his money with the sub-advisers performance has been solid.

It is not known how much of SAC Capital’s money is managed by Scopus and Adams Hill.

Of the two firms, Scopus is older and larger. The firm was launched in 1998 by trader Alexander Mitchell, roughly six years after Cohen opened SAC Capital with just $25 million. Mitchell had previously worked for hedge fund veteran Michael Steinhardt, according to two people familiar with Mitchell.

Scopus, which regulatory documents reveal has about $2.8 billion in assets, manages SAC Capital’s funds in a separate account from the rest of its investors’ money, according to a person who knows Mitchell.

In regulatory filings, Scopus said it provides investment advice to a single “managed account” and that under an agreement with the unnamed fund it invests “in most, if not all, of the same securities.”

Scopus, like SAC Capital, charges investors some of the highest fees in the industry. The firm keeps between 25 to 40 percent of all profits on top of a 1 percent to 2 percent asset management fee, according to regulatory documents.

Cohen’s fund charges clients a 3 percent asset management fee in addition to receiving 50 percent of all trading profits. SAC Capital’s fee structure has enabled Cohen to build a workforce of 950 employees, one of the largest in the industry.

Adams Hill, meanwhile, is a smaller shop. The Westport, Conn. firm was founded just last year by Andrew Schwartz, a longtime equity portfolio manager at SAC Capital. Schwartz took three SAC Capital colleagues with him to his new firm, which manages about $450 million in assets, according to regulatory filings.

Other Wall Street firms are keeping a close eye on how Cohen shrinks his fund. Wall Street firms that provide prime brokerage services to SAC Capital, such as, Goldman Sachs, Morgan Stanley and Citigroup among others, collectively reap about $500 million in trading commissions each year, said several people familiar with the hedge fund industry.

There is an expectation those commissions would drop as a smaller SAC Capital would trade less.

(Reporting By Katya Wachtel and Matthew Goldstein- Editing by Leslie Gevirtz)

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