Clients pull out 23 percent of Diamondback's capital

17/02/2011 - 18:15

BOSTON (Reuters) - Jittery investors are pulling $1.3 billion out of Diamondback Capital -- nearly a quarter of its capital -- less than three months after the hedge fund was raided by federal agents as part of the government's insider trading probe, the firm told investors in a letter on Thursday.

Diamondback executives had set a deadline of February 15 for pension funds, endowments and wealthy investors to tell the firm if they wanted to pull money out. By Thursday, the firm had tallied the total, reporting that 23 percent of its capital will be removed by the end of March.

At the same time, several large investors, including Blackstone Group LP , which had the most money available for redemption, are staying put, people familiar with the hedge fund said.

Reuters obtained a copy of Diamondback's brief, three-paragraph letter to investors. A spokeswoman for the firm declined to comment.

Diamondback was one of four firms visited by FBI agents in November. Shortly after the raid, the firm placed a portfolio manager on leave. Neither the firm nor the manager has been charged with any wrongdoing.

Still, investors where getting nervous about any whiff of scandal.

In less than two weeks, the amount of money that investors wanted back more than doubled. On February 1, investors were told the firm faced redemptions of $534 million. The number had climbed to about $1 billion by early this week.

Several large investors have said privately that they still have confidence in the firm, which recently managed $5.5 billion.

Pension funds including the New York State Common Retirement Fund, the Indiana Public Employees Retirement Fund, the School Employees Retirement System of Ohio, the Missouri State Employees Retirement System and the New Mexico Public Employees Retirement Association were all invested with the firm late last year.

Last week, Level Global Investors, another of the firms raided by federal agents, told investors it was shutting down.

Diamondback, founded by SAC alumni Richard Schimel and Larry Sapanski, employs about 200 people, and its individual managers are given greater latitude in trading than at Level Global.

It is significantly larger than Level Global, where trading appeared to have been concentrated among a few people, sources familiar with the firms said.

(Reporting by Svea Herbst-Bayliss; editing by John Wallace)