Steven A. Cohen, whose hedge fund firm SAC Capital Advisors has drawn scrutiny in a federal insider trading probe, may be facing a more pressing problem: diminishing returns.

The billionaire investor has long been known for his eye-popping returns, but last year his $12 billion fund returned a more modest 15.85 percent -- lagging far behind his 30 percent gain in 2009 and only matching the rise in the Standard & Poor's 500 Index.

While Cohen bested the average hedge fund's 10 percent gain, the return ranked among SAC's worst since 2000 and will likely spark fresh complaints about its notoriously high fees, according to industry investors, consultants and analysts.

Investors view Steven Cohen as a money maker, but the market is far more competitive now than it was four years ago, said Donald Steinbrugge, managing partner at investment consulting firm Agecroft Partners. And for anyone who has very high fees like SAC, it is going to be very difficult for them to get hired.

For years, market-besting returns like the 73 percent gain SAC delivered in 2000 seemed to justify the fees Cohen charged. Wealthy investors happily lined up to pay him a 3 percent management fee plus a 50 percent performance fee for the privilege of investing with SAC, one of the world's biggest and most successful funds.

But in the wake of the 2008 financial crisis, when SAC lost 19 percent -- the firm's only down year in its 19-year history -- Cohen's sky-high fees may no longer be tolerated, especially considering most other managers charge a 2 percent performance fee and a 20 percent management fee, consultants who work with investors say.

In a recent survey, 13 percent of respondents said they rank receiving value for money as a top challenge, up from 4 percent a year ago, according to the study from financial services firm SEI.

To be sure, Cohen isn't the only manager with super-high fees who is having trouble attracting institutional clients. Several industry observers said institutional investors are also grumbling that Louis Bacon's Moore Capital is too pricey.

So far, Cohen's wealthy investors have largely remained loyal to him, allowing SAC to avoid the kind of redemptions other fund firms have faced.

But even long-term investors' patience may be tested now that returns seem to be lower than usual.

Their worries may be amplified after what seems like a misstep with drug company Orexigen Therapeutic Inc , whose shares tumbled 72.5 percent on Thursday after U.S. health regulators rejected its new diet pill. SAC and its CR Intrinsic unit, which largely manages money for Cohen, ranked among the biggest investors in Orexigen. SAC has 2.37 million shares and CR intrinsic has 1.07 million, according to data from the U.S. Securities and Exchange Commission.

And outsiders as well as insiders are saying quietly that they worry about headline risk with Cohen, especially now that his firm has become embroiled in the government's insider trading probe.

He is so prominent and there are just bound to be headlines that people worry about, said one consultant who asked not to be named because he works with SAC investors.

Late last year, federal prosecutors requested information from SAC and a number of other prominent mutual fund managers. None of these firms have been charged with any wrongdoing.

Early this year Cohen told his investors that he is confident the probe will have no financial impact on investors and assured them it is business as usual at SAC headquarters.

In a year-end letter to investors, he said SAC would pick up the tab for whatever expenses are incurred in complying with the government's request.

We will continue to ignore media speculation and instead focus on conducting our business, he wrote.

But some would-be investors wonder.

The insider-trading probe will surely have some impact on his performance simply because his analysts are bound to be more conservative in terms of what information they seek and accept, Agecroft Partners' Steinbrugge said.

(Additional reporting by Matthew Goldstein; editing by John Wallace)

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