Investors may exit Cohen's funds

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Steven Cohen's stature in the hedge fund industry remains immense, if a bit tarnished.

He has suffered a lot of blemishes to his reputation over the past few years, courtesy of the insider trading scandals that have swirled around him and his firm, SAC Capital, though neither has ever been charged. One big issue right now is the extent to which his investors will get antsy and decide to sever ties. Most have been very happy with him over the years. He's generated positive returns just about every year since the early 1990s, and that has empowered him to charge a whopping 50 percent in performance fees. If investors decamp, it will not be for performance reasons.

A rather ominous sign is that a hedge manager told CNBC, "that because of concerns among some of his own investors, he planned to pull his company's entire investment from SAC — a dramatic move that normally takes place only in cases of extreme market turbulence or reputational damage to a firm…The fund of funds manager…that he was making the move reluctantly, even saying that he was 'sick' over the decision because SAC had generated such positive returns in recent years. He also said the size of his investment at SAC was in the tens of millions — a 'rounding error' given the size of SAC's $14 billion in assets under management." 

I doubt that investors will head to the door en masse, but you can bet that this is an issue that limited partners will be scratching their heads over. SAC has moved to limit the fallout by reaching out to the largest clients. For now they seem to be willing to stay on board, but an indictment is ever handed down, all bets are off.

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