Saturday, February 23, 2013

Update 3 -- SAC: The Long Road to Redemptions

SAC: The Long Road to Redemptions

 As the SEC and Justice Department circle ever closer to SAC, investors have redeemed $1.7 billion out of $6 billion from SAC.  Don’t feel too sorry for Mr. Cohen and his colleagues.  First, they have $9 billion of their own money to invest.  Second, those investors who redeemed will only get their money in installments, over the remainder year.

Why does it take so long?  SAC has very favorable terms with its investors.  Not only does SAC get 35% or more of any profits, its contract limits the ability of its investors to get their money back.  There’s no investment reason why SAC couldn’t give its investors all their money on short notice, since most of the investments are in liquid securities.  However, it could demand favorable terms because investors were clamoring to invest with them in the first place.  As a result, of SAC’s legal troubles, cracks are appearing in their business.  The company has opened up its main fund to new investors, and they’ve told investors they can place a redemption notice later in 2013 and still get all their money by year-end.  I’m actually amazed that the redemption figure wasn’t larger.  Then again, investors like the 20% plus returns SAC generates, even if they are produced under a cloud.

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