Paulson Too Big To Succeed?

Mar 30 2010 | 1:46pm ET

Is Paulson & Co. primed for a big fall? Some say the New York-based hedge fund, little known three years ago and now the third-largest hedge fund in the world, is too big to succeed, Bloomberg News reports.

Paulson managed $32 billion at the beginning of the year. But despite the fund’s size, founder John Paulson has not closed the fund to new investment and is continuing to take in new money. And there are plenty of investors lining up, given the firm’s remarkable run of performance since turning in triple-digit returns betting against subprime mortgages in 2007.

But the firm’s returns have slowed since it made a name for itself amidst the credit crisis. Last year, Paulson lagged its hedge fund peers, and is doing so again in the early going of this year.

“As with all managers that bulk up, there’s always the risk of returns becoming mediocre,” Richard Tomlinson, a hedge fund consultant, told Bloomberg.

Or worse: Bloomberg suggests that Paulson’s trajectory is similar to that of three other once-giant hedge funds that suffered a mighty fall: Soros Fund Management, Tiger Management and Citadel Investment Group.

The former two were the only $20 billion hedge funds in 1998. By the end of 2000, both had taken big losses and stopped managing outside money. In the case of Citadel, the Chicago-based alternative investments giant had grown to $20 billion by 2008, only to see its flagship hedge funds lose more than half their value that year.

“There is a point where you can be too big to generate returns,” Lawrence Chiarello of SkyView Investment Advisors told Bloomberg. “Being large and able to build a strong infrastructure are good things, but in general I think the pendulum has swung too far.”

Indeed, according to Bloomberg, Paulson is more like its doomed predecessors than the two hedge funds that top it in the league tables, JPMorgan Chase and Bridgewater Associates. While the latter two favor many small bets, Paulson’s funds tend to be more concentrated, increasing the risk of catastrophic losses.


In Depth

Why Ponzi Schemes Work: An In-Depth Look At The Allen Stanford Fraud

Dec 21 2014 | 10:30am ET

Texan Allen Stanford first appeared on the radars of financial regulators in 1997...

Lifestyle

Hedgie Funds US Squash Program

Dec 24 2014 | 8:46am ET

Squash, anyone?

Guest Contributor

EidoSearch’s Top Three Market Projections For 2015

Dec 23 2014 | 4:03am ET

It is that time of year again when prognosticators make their big market calls for...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.