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| | Steven Cohen, SAC Capital Advisors |
The roughly $5 billion in assets that have reportedly been redeemed from SAC Capital Advisors may already be looking for a new home. Among those who believe they are being shopped by allocators seeking to reinvest withdrawn SAC money is Balyasny Asset Management, the Chicago-based hedge fund manager with $3.8 billion in assets under management. “We are getting inquiries,” says Colin Lancaster, a senior managing director at Balyasny. “I think from the largest allocators’ perspective, they don’t want to have to significantly alter their portfolio construction, so they need to find someone who will do roughly the same thing.”
SAC has been in a long-running battle with the Securities & Exchange Commission and the Justice Department over insider trading allegations, leading some worried investors to pull their money out earlier this year. SAC had been cooperating with the government and it appeared the case was headed toward settlement, but things fell apart as the government has kept the heat on. After SAC recently said it would no longer fully cooperate in the investigation, redemption requests accelerated.
Balyasny will likely have plenty of company in the scrum for SAC assets coming back into play. Among others mentioned as possible contenders are Millennium Asset Management and Visium Asset Management, two New York funds that, like Balyasny, employ several investment specialists under a well-known founder, similar to the structure at SAC. Visium is a Balyasny spinoff, formed by Balyasny alum Jacob Gottlieb.
Mike Hennessy, director of investments at Morgan Creek Capital Management, a hedge fund of funds in Cary, N.C., says the tough part of reallocating SAC money will be finding managers who can deliver the high level of returns SAC was famous for.
“Much of the redemption money from SAC will likely – but not necessarily – be seeking a similar profile as SAC’s: a diversified equity long-short strategy that is highly risk controlled but which also performs very well,” Hennessy says. “That is a very tough ticket to find. I suspect at least some limited partners may even throw up their hands and reallocate the proceeds across a wider array of strategies and managers.”
Among those that have been reported to make redemption requests are the Blackstone Group in New York, Ironwood Capital Management in San Francisco and Magnitude Capital in New York. What those and other investors will do with their redeemed funds remains to be seen.
Much of the money now coming out of SAC likely was placed years ago, when SAC was a brand name with a stellar performance record that investors lined up for. As one hedge fund marketing specialist pointed out, SAC investments were often “special” allocations made simply to get in on the action and not as a part of an overall portfolio balancing measure as might be more typical. That scenario could work to the benefit of SAC spinoffs, who might be able to offer an echo of their former company in their new funds. Five SAC alumni have rolled out new funds this year alone.
But an SAC connection may not necessarily be a blessing. The current wave of redemptions stems from a desire to escape the headline risk at SAC, and that may be a problem for managers with a past connection to SAC. Hennessy says many money managers “will no doubt have a bias against any SAC affiliation.”
That bias may have been heightened after the collapse of Diamondback Capital Management at the end of last year. Diamondback, which was hit by another insider trading investigation, was run by two former SAC employees.
Still, the sudden appearance of some $5 billion in assets seeking a new home presents a tantalizing prize for hedge funds looking to grow.
