[ by Larry Goldfarb ]

Redemptions appear to be on the horizon for SAC  Capital, a lot of them.  Amid the growing turmoil associated with the governments' brazen investigation of insider trading, the hedge fund giant is preparing for a possible wave of withdrawal requests from its clients.  Already, several of SAC's clients, including Lyxor Asset Management and Titan Advisors, have notified the fund that they intend to withdraw their money.  The fund has a standard quarterly redemption deadline, and the next one will fall on Feb. 15. Thus, investors have about a month to decide whether to pull out money from SAC, the $14 billion fund owned by the billionaire investor Steven A. Cohen.

While posting one of the best investment track records on Wall Street across two decades, SAC has attracted billions of dollars from pension funds, wealthy families and other money management firms. But since late November, when the government brought its latest criminal insider trading charge against a former SAC employee -- a case that it calls the most lucrative insider trading scheme ever uncovered -- those clients are weighing whether continuing their relationship with the fund is worth the reputational risk.

Questions remain about the intentions of several of SAC's well-known investors, including the Blackstone Group. With about $550 million invested in SAC, Blackstone is one of the fund's largest outside investors. A Blackstone spokesman declined to comment on Friday.

The fund has told its employees that it could face at least $1 billion of withdrawals, according to a report in The Wall Street Journal on Friday. A spokesman for SAC said it was "far too early to speculate about redemptions, and we do not expect redemptions to have a significant impact on our funds."

While a spate of redemptions can have a crippling effect on a hedge fund - forcing it to sell its holdings at unfavorable prices - SAC is more insulated than most of its competitors from the ill effects of client withdrawals. That is because of the $14 billion that SAC manages, only about 40 percent of that comes from outside clients. The rest -- a fortune of about $8 billion -- belongs to Mr. Cohen and his employees.

Also, SAC has protected itself with a stringent redemption policy. The fund's clients can redeem only 25 percent of their investment each quarter. So, for example, if a client has $200 million invested with SAC, and asks for its money back by the Feb. 15 deadline, SAC would return $50 million every three months beginning in March. That way, SAC is protected from having a forced liquidation of its investment portfolio.

Mr. Cohen has told his employees that he believes that he and his fund have at all times acted appropriately, and that the fund has fully cooperated with the government's investigation. In recent weeks, SAC has gone on a charm offensive in an attempt to hold on to clients. The fund has told its investors that they would not be responsible for any penalties incurred as a result of any of the government's legal. Instead, SAC has told them, Mr. Cohen and his management company would pick up the tab. 

Though Mr. Cohen has told his friends and employees that he remains committed to managing money for outside clients, he could decide to follow in the footsteps of several fellow billionaire hedge fund managers. A number of star investors, having already amassed billions in personal wealth, have decided to get out of the business of managing other people's money. In recent years, for example, both George Soros and his onetime protégé, Stanley Druckenmiller, returned money to clients and set up so-called family offices in which they manage their own fortunes.

For more information, please read [NYT Dealbook, 1/11/13].