In most things, bigger is better, but not necessarily when it comes to investing. That’s because the bigger you are, the more difficult it is to take small positions or trade quietly.
That’s not good news for hedge fund megastar John Paulson, who currently runs $32 billion of assets. He’s still accepting new cash, unlike many competitors.
“There’s no doubt that Paulson is a big draw for investors at the moment,” Richard Tomlinson, a hedge fund consultant, told Bloomberg.
“As with all managers that bulk up, there’s always the risk of returns becoming mediocre.”
Paulson famously made $3 billion betting against subprime mortgages in 2007.
“Being large and able to build a strong infrastructure are good things,” Lawrence Chiarello, a partner at SkyView Investment Advisors, told Bloomberg.
“But in general I think the pendulum has swung too far.”
But not everyone is worried about Paulson’s growth.
“For funds that invest in a number of strategies, size isn’t an issue,” Brad Alford, a Paulson investor, told Bloomberg.
“Bigger funds produce more in revenue, so they can hire the best talent and build the most robust infrastructure.”
Investment legend Warren Buffett acknowledges that size has slowed his Berkshire Hathaway’s gains.
“Our performance advantage has shrunk dramatically as our size has grown, an unpleasant trend that is certain to continue,” he wrote in his most recent letter to shareholders.
“Huge sums forge their own anchor.”
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