The Morning Brief: SAC Reportedly Close to $1 Billion-Plus Settlement

Steve Cohen’s SAC Capital Advisors and the government have “agreed in principle” to a settlement over criminal charges related to alleged insider trading, according to the Wall Street Journal. The Stamford, Connecticut hedge fund has agreed to pay a penalty ranging between $1.2 billion and $1.4 billion, which would be the largest ever for an insider-trading case, according to the report, which cited people familiar with the matter. Altogether, the SAC will wind up paying nearly $2 billion in fines, including the $616 million it has already agreed to pay the Securities and Exchange Commission in a civil settlement.
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London-based Egerton Capital is the latest hedge fund firm to close to new investors. The firm, headed by John Armitage, closed its long-only fund in September and stopping accepting new money for its long-short hedge fund late last year. Egerton currently manages $11.4 billion, up from just $6.3 billion one year ago.
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Hedge funds are shelling out hefty sums for compliance. The average small fund is spending $700,000, medium-size fund managers are spending $6 million while large fund managers are spending $14 million, according to a new report produced by KPMG International, the Alternative Investment Management Association (AIMA) and the Managed Funds Association (MFA). Altogether, the hedge fund industry has spent more than $3 billion on compliance costs to meet new global regulations. Looked at a different way, hedge fund managers on average are spending between 5 percent and 10 percent of their operating costs on compliance technology, headcount and strategy. Most managers are absorbing these costs rather than passing them on to the funds.
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Another hedge fund data collector has weighed in with its estimate of the total assets in the industry. According to eVestment, there was a little more than $2.69 trillion dollars in hedge fund assets as of the end of August. This includes a net increase of $21.45 billion in August alone.
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Shares of Google surged between 5 percent and 6 percent in after-hours trading after the search engine giant reported third-quarter results that beat consensus forecasts. The stock had closed about 1 percent in the regular trading session.
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Shares of Chipotle Mexican Grill, a widely-noted short position of David Einhorn’s Greenlight Capital, rose another 3 percent in after-hours trading after the fast food chain reported third-quarter revenues that exceeded expectations even though earnings came in below forecasts. Significantly, same-store sales rose 6.2 percent in the third quarter, far exceeding the 4.7 percent growth forecast by analysts.
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Eastman Chemical’s stock rose another 1.46 percent to close at $81.45 on Thursday, its seventh straight higher finish. The company is a position in the portfolio of Barry Rosenstein’s activist firm Jana Partners and may or may not be its next activist target.