Institutional investors are assessing their investments in hedge fund managers caught up in a wide-ranging insider trading investigation by federal law enforcement officials.
A large swath of institutional investors might have small exposures to two long/short equity managers that are being investigated, Diamondback Capital Management LLC and Level Global Investors LP. That's because some of the largest hedge funds-of-funds managers that manage most of their money for institutional investors are invested in the hedge funds of one or both firms.
In addition, institutional investors — including the $124.8 billion New York State Common Retirement Fund, the $9.4 billion Ohio School Employees Retirement System and the $70.2 billion New Jersey state pension fund, managed by the New Jersey Division of Investment — invested directly in Diamondback and/or Level Global.
Charges of wrongdoing have not been leveled at Diamondback, which manages about $5.3 billion, or Level Global, which manages about $3.5 billion.
Offices of both firms, along with a third hedge fund manager, Loch Capital Management LLC, were searched by FBI agents last week.
Steve Bruce, a spokesman for Diamondback, and Andy Merrill, a spokesman for Level Global, confirmed the FBI searches and said executives at their firms are cooperating.
Among the firms that sources said have received requests for documents from federal investigators looking into insider trading are SAC Capital Advisors LP, Wellington Management Co. LLP, Janus Capital Group Inc. and Citadel LLC.
Janus confirmed in an e-mailed statement that it got a request for general information and will cooperate with the inquiry.
Executives of SAC, Citadel and Wellington declined to comment.
Leonard A. Pierce, a partner in the law firm of Wilmer Cutler Pickering Hale and Dorr LLP, could not be reached by press time for comment about his client, Loch Capital Management.
Despite the lack of formal charges, pension fund executives and their consultant, along with hedge funds-of-funds managers, say they are very closely watching Diamondback and Level Global as events unfold.
Officials at Albany-based New York State Common Retirement Fund are “very concerned about reports of the investigation. ... We're staying in touch with both companies and are monitoring them carefully,” said Dennis Tompkins, spokesman for State Comptroller Thomas P. DiNapoli, sole trustee of the fund.
Mr. Tompkins said New York State Common has $250 million invested in Diamondback's long/short equity strategy and $100 million in a similar strategy managed by Level Global.
“We're not going to be making any sudden moves, but we are in conversation with both companies because we do have constraints on the liquidity of our investments with them as per our contract agreement,” Mr. Tompkins said.