John Paulson is struggling to keep his investors on board. Between a fifth and a quarter of investors in Paulson & Co funds may soon ask for their investments to be returned, according to various articles (including the FT and Reuters). In the case of investors in Paulson's flagship Advantage Plus fund, they're looking at a loss of 47% since the start of this year. Ouch.
Those investors who are inclined to stick with Paulson may regard this year's dreadful performance as a mere hiccup. It's not an unreasonable view – Paulson's record is more substantial than his famous winning bet against sub-prime mortgages in 2007.
And, as the FT's analysis points out, the cause of his woes this year has not been an adventure into an esoteric investment backwater. Paulson has simply made a large, and poorly timed, bet on a US recovery. Some investors may still wish to keep those chips on the table.
That would be their choice. Looking from outside, however, one has to wonder what kind of fund Paulson can claim to be running at Advantage Plus. Okay, it's a geared fund (and the gearing will now be reduced) but a fall of 47% takes some doing in a year in which the S&P 500 index is down only 6.7% to date. It's only possible with a quite extraordinary level of concentration in the portfolio.
To repeat: maybe that's what some Paulson investors want. But aren't grown-up, serious hedge funds meant to offer something more ambitious – like protecting investors' wealth when the world is full of uncertainties? It would be hard for Paulson to claim he's playing that game.
