Paulson Not on Board with Redemption Restrictions

New York (HedgeCo.Net) – John Paulson, head of hedge fund firm Paulson & Co., recently spoke his mind on the wave of redemption freezes that many managers have chosen to impose. 

“We think it’s a mistake for our managers to use gates and other tools to limit investor access to their funds,” Paulson stated in a recent outlook to investors that was obtained by Bloomberg News.  “While we recognize the difficulties of the current environment, we think it is a manager’s responsibility to raise liquidity to meet the redemption needs of their investors.”

Paulson’s hedge funds did not see the effects of the troubled economy, where most funds posted their worst year to date.  In fact, when the subprime crisis wreaked havoc on the financial markets, Paulson was catapaulted into billionaire status, by successfully predicted the housing mess.  His hedge funds, in turn, were up about $15 billion in 2007.

This year also saw admirable gains, with his Advantage Plus Fund climbing 3.19 percent in November, and currently up 38 percent on the year.  His slightly smaller Advantage Fund was also up 21 percent through the end of November.

Most other funds haven’t experienced that level of success this year.  According to the Credit Suisse/Tremont Hedge Fund Index, funds are down over 19 percent on the year through the end of November.  Dozens of large, reputable funds have suspended withdrawals including Citadel, RAB, Harbinger and Cerberus, just to name a few. 

Paulson also disagrees with managers that “have the cash and one of the stated reasons for restricting withdrawals is so the manager can continue to invest in new opportunities.”

Paulson’s firm is teaming up fellow New York firms Dune Capital Management and J.C. Flowers & Co. to purchase failed bank IndyMac.  A deal is expected to be finalized in the near future.

Julie Scuderi
Senior Editor for HedgeCo.Net

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