So far in 2011, investor loyalty and patience is being tested, specifically when it comes to newly-minted billionaire hedge fund manager John Paulson.
Economic hardships and stress on the banking sector have led the president and founder of Paulson & Co. to endure substantial loses; his flagship $38 billion hedge fund is down 21.5% already this year according to figures released last Friday and will likely continue on a downward path with each drop in the U.S. stock market.
In the letter sent to Paulson investors, the firm admitted it had received withdrawals in the amount of $430 million from the two Advantage funds, totaling to $15.5 billion in assets.
The fund includes a sizeable number of stakes in shares of financial institutions such as Citigroup (down -36.6% ytd in 2011), Bank of America (-43.7%) and Hartford Financial (-23.7%). It will suffice to say that with the banking index near its lows for the year and at the lowest levels since mid-2009, these investments are driving Paulson’s high-profile underperformance.
Ample losses have led investors to worry particularly with growing fear of a double-dip recession. This added to the recent 13 percent market plunge and Paulson followers are beginning to fear he will be unable to turn things around.
“There are many investors who have experienced great gains with John Paulson, but a lot of the money has come into his funds after those great gains were achieved, and the relative newcomers are seeing a lot of heavy losses,” director of research at the Hedgeye Risk Management, Daryl Jones said.
The string of blunders have tarnished the manager’s once golden reputation.
Indeed, if not by the end of the year, investors may be pulling out of the Paulson funds.
“I would imagine it would lessen their appetite to stay with someone who is supposed to be a big superstar but is down double digit right now,” Jones added.
Paulson’s spokespeople declined to comment.
Paulson’s swift success can be attributed to his big bet in 2007 on the collapse of the U.S. housing market. It has been well chronicled that Paulson’s bearish bets, which tested investors’ fortitude until they finally paid off, pocketed billions for himself and his investors. Unfortunately, this time around, his bold bet that the economy would bounce back like a boomerang from the financial crisis isn’t working out as hoped.
Currently employees supply over 36% of cash in the funds. A great portion of the $20 billion in outside investor money belongs to clients who bought in after the initial $15 billion success.
Many investors and industry question whether Paulson’s Advantage funds are too large and inflexible to sail smoothly let along navigate on the choppy waters of the current U.S. market.
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Comments
Your article seems as if it were written by the media since it is so watered down. How about telling the truth about Paulson - he defrauded investors to make his money via designing trash securites with Goldman SUCKs, then betting against them. Oh wait, I see. You want your article to get media acceptance because all you are is a MARKETER, NOT an asset manager. The fact that you fail to mention this makes you look like a bozo, and no one in their right mind would ever hand money over to you.
Even a broken clock is right twice a day.