Some Investors Giving Up On Paulson

Oct 26 2012 | 1:41pm ET

Investors may finally be losing faith in John Paulson, whose flagship fund lost 36% last year and is reportedly down 15% as of September 30.

Days before an October 31 deadline for investors to notify Paulson if they plan to redeem their capital, CNBC reports a number of investors are planning to do just that.

The disgruntled clients include the Public School and Education Employee Retirement Systems of Missouri, which have pulled two-thirds of their original investment with the New York-based hedge fund.

“We expected, based on the way [Paulson] does things, that we’re going to have periods of time where he’s out of favor,” said Craig Husting, chief investment officer of the pension funds, told CNBC. “But just the beta—the volatility of his bets—is why we pared back.”

Citigroup announced in August it would redeem $410 million from Paulson's flagship funds (beginning in 2013). CNBC says the 92nd Street Y pulled its money this year over concerns about potential losses and the brokerage arm of Morgan Stanley is considering following suit.

Paulson, in a written statement, acknowledge the recent performance of its Advantage fund had been “disappointing,” but argued that over their lifetime, the Advantage funds, founded in 2004, had “far exceeded” both the event-driven hedge fund index and the S&P 500, returning over 10% annually.

Paulson also pointed out that 89% of its Advantage fund investors have opted to invest using gold, rather than dollars, as a currency and, in gold-share terms, the fund is flat for the year. The firm also argues that on a capital-weighted basis, its funds are up 2%, on average, this year.

Paulson & Co., which once managed $38 billion now manages about $20 billion, reports CNBC, citing “people familar with the matter,” and about $12 billion of that belongs to Paulson and his employees.

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