Cohen says insider probe won’t hurt SAC investors Hedge Funds - MarketWatch

SAN FRANCISCO (MarketWatch) — Steven A. Cohen, head of SAC Capital Advisors, told investors they won’t suffer losses or incur costs from a government investigation into potential insider trading in the hedge-fund industry, according to a year-end letter obtained by MarketWatch on Tuesday.

Cohen also described the new trading teams that are joining SAC and predicted a “reasonable” year for the stock market in 2011, after calling 2010 “strange,” according to the letter, dated Jan. 31.

SAC, one of the largest hedge-fund firms in the world, told investors in November that it was subpoenaed by federal authorities amid a widening insider-trading investigation. Read about SAC’s involvement in government probe.

In its Jan. 31 letter to investors, Cohen said SAC’s management company will bear any costs related to the investigation.

“Accordingly, we are confident there will be no financial impact to our investors,” he wrote. “While this investigation plays out, I and the other portfolio managers remain focused on managing the assets entrusted to us. We are confident that our ability — and my ability — to do so will not be affected.”

Cohen stressed that SAC has a “stable” capital base, partly because a lot of the money the firm oversees is its own internal capital. Read about why SAC may feel little redemption pressure.

Market outlook

Cohen also said the global economic environment plays to the firm’s strengths. “Despite significant issues in the global economy, there are indications that the stock market may be poised to have a reasonable year,” he wrote.


Reuters

Steven A. Cohen
The continuation of Bush-era tax cuts and the Federal Reserve’s second round of quantitative easing, combined with the extra fiscal stimulus from reductions in Social Security taxes, should help economic growth accelerate and unemployment begin to trend down, he explained.

“With that backdrop, it is likely that stock volatility and stock/factor correlation will stay reasonably low, and this should create a reasonably attractive environment for stock pickers,” he added. Read about hedge-fund hopes for lower correlation.

This may be a contrast to 2010, which the hedge-fund manager described as “strange.”

When the European sovereign-debt crisis erupted in the spring, volatility spiked and correlations reached record highs, according to Cohen. That makes it difficult for stock pickers to add value.

By the middle of the summer, government efforts to control the crisis and stimulate the economy made investors less concerned and correlation and volatility dropped, helping stock pickers outperform, he wrote.

SAC’s main hedge funds returned more than 14% in 2010. After losing more than 2% in the second quarter, they gained roughly 6% and more than 5% in the third and fourth quarters, according to the letter to investors.

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Cohen says insider probe won’t hurt SAC investors Hedge Funds - MarketWatch

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