Vultures Circling Paulson Holdings

Sep 28 2011 | 11:58am ET

Paulson & Co. is in trouble, with its flagship hedge funds down by double-digits, but some of its peers think that's just the tip of the iceberg.

Hedge fund managers, bankers and brokers are poring over Paulson's portfolios, trying to figure out what the $30 billion firm will do. Some hope to snap up some of the New York-based hedge fund's holdings at bargain-basement prices, while others want to sell their shared holdings before a Paulson fire-sale drives down prices, The Wall Street Journal reports.

"People are looking over his portfolio," a hedge fund trader told the Journal, referring to firm founder John Paulson. "There are constant conversations about what he owns. People are avoiding his names or trying to get in front of them."

Paulson investors have until the end of next month to file a redemption request by the end of the year. While a source familiar with the situation told the Journal that the firm has not been hit with an above-average number of such requests, investors appear to be anticipating that it will be—and that it will have to sell off holdings to meet them.

Much of the speculation has centered on Paulson's holdings of Lehman Brothers bonds. The hedge fund owns as much as $3 billion worth of it, and sold about $100 million worth recently. Several large investment bank brokers began calling big investors to gauge their interest in buying some of Paulson's Lehman bonds—at a fraction of their face value—although its unclear if those brokers where doing so at Paulson's behest or were simply hoping to tempt Paulson with an offer.

Paulson has been getting offers: It turned down one broker who offered to buy $1 billion of the Lehman bonds at their current market value, and another firm that offered a below-market price.


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