Tags: Investors | Paulson | Hedge | Fund

Investors Stay With Paulson Despite Hedge Fund Losses

Wednesday, 02 Nov 2011 09:46 AM

Hedge fund manager John Paulson's Halloween was not as frightening as it could have been.

Only hours after a critical deadline passed on October 31, the billionaire hedge fund manager told investors that the firm had received gross redemption requests totaling less than 8 percent of the firm's assets under management, three people familiar with the matter said on Tuesday.

A quick calculation suggests that Paulson, who most recently oversaw $30 billion in assets, would have to return roughly $2.4 billion to investors who have asked for their money back by the year's end.

A spokesman for the firm declined to comment.

News of the number puts to rest heavy speculation about Paulson's ability to hold onto money during bad times.

Ever since reporting that his Advantage Plus fund — one of his biggest — tumbled 47 percent in the first nine months of the year, Paulson has been hit by speculation that pension funds and others might turn their backs on him.

But Paulson and his staff had been quietly calming anxious investors recently, saying redemptions were looking light. Only a few weeks ago Paulson had laid out a worst-case scenario by saying that between 20 percent and 25 percent of the firm's capital was eligible to be redeemed.

On Tuesday, the firm could report relatively good news. In a letter sent to clients, Paulson said this number was well below what is typically seen during the year end cycle.

Paulson has not yet given a figure for net redemptions and industry analysts said it might take a few days to calculate these statistics.

But they noted that, despite the heavy losses this year, Paulson, whose triple-digit returns in 2007 sparked a loyal following, might have actually attracted new money. Several weeks ago, the fund manager said he would not charge performance fees on new money until he made up his losses.

Many fund managers were able to trim their losses in October thanks to a rally that marked the best month for stocks in nine years. Indeed, Paulson investors are looking for some positive numbers, noting however that October returns have not been announced yet.

Despite an uptick recently, 2011 is still expected to go down as the worst for the closely watched Paulson, who has acknowledged several times over the last few months that he was simply too bullish that the economy would bounce back. He blamed the funds' biggest losses on big bets on financial stocks.

To help with his economic forecasts, Paulson also said Tuesday that he has asked prominent economist Martin Feldstein to join the firm's advisory board.

Feldstein, 71, a professor at Harvard who has long been rumored as a candidate for the Nobel Prize in economics, has advised a president, central bankers and hedge fund managers before. His long resume includes a stint as Chairman of the Council of Economic Advisers between 1982-84 and the President and CEO of the National Bureau of Economic Research twice: between 1977-82 and 1984-2008.

He joins former Federal Reserve Chairman Alan Greenspan, Christopher Thornberg, an expert in the study of regional economies, and credit and debt markets expert Edward Altman, on Paulson's advisory board.

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