HSBC Holdings Plc's private bank advised clients to not add money to Steven A. Cohen's SAC Capital Advisors LP amid a United States government insider-trading investigation into the hedge fund, according to a person with knowledge of the matter.
Bloomberg reports that the bank made the recommendation to some clients last month after SAC disclosed that regulators may file civil fraud claims against it, said the person, who asked not to be named because the information is private.
Stamford, Connecticut-based SAC has told some employees and outside advisers that it expects investors to withdraw at least $1bn, or 17 per cent of the money it manages for outside clients, according to a person familiar with the discussions
Citigroup Incorporated's private bank last month suggested clients not add to their SAC investments after the November arrest of a former portfolio manager and disclosure that the US Securities and Exchange Commission is considering suing the $14bn hedge fund.
The investigation marks the first time government officials have linked Cohen to trades at the center of an insider-trading case.
A Zurich-based spokesman for HSBC's private bank, Mr. Medard Schoenmaeckers, declined to comment on investments in SAC.
It's "far too early to speculate about redemptions, and we do not expect redemptions to have a significant impact on our funds," a spokesman for SAC, Mr. Jonathan Gasthalter, said.
Cohen's SAC Capital International rose by 13 per cent last year, according to a person briefed on the returns. The fund has produced average annual gains of about 30 per cent since its 1992 inception.
HSBC, based in London, advises SAC investors and separately manages client investments in the hedge fund through its fund- of-funds business, the person said.
The recommendation to not add money directly wouldn't apply to the fund-of-funds investments, in which HSBC charges fees to pick hedge funds on behalf of clients. HSBC's private bank facilitates more than $500m of SAC investments across both businesses, the person said.
Clients can pull 25 per cent of their investment every quarter from SAC after giving the firm 45 days' notice, meaning it would take them a year to redeem in full. The next deadline for putting in a redemption notice is mid-February.
The fund-of-funds units at HSBC and New York-based Blackstone Group LP are monitoring how the government proceeds regarding SAC and have not decided whether to pull any money from the hedge fund, people with direct knowledge of the firms' thinking said.
A spokesman for Blackstone, Mr. Peter Rose, declined to comment.
Prosecutors in November charged Mathew Martoma, the former SAC employee, with what they called a record-setting insider- trading scheme that netted as much as $276m in profits and averted losses for the hedge fund in 2008.
