Investors back hedge fund star Paulson despite disastrous year

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The Independent Online

Reports of my hedge fund's death have been exaggerated, the billionaire manager John Paulson told his investors as a critical deadline for redemptions passed with less than eight per cent of the fund's money being pulled out.

After a year of disastrous investment returns, Mr Paulson had been bracing for redemption request for up to one-quarter of his $30bn (£19bn) fund, but investors seemed content to give him more time to improve his performance.

His firm, Paulson & Co, shot to prominence during the 2007-2009 financial crisis thanks to a lucrative bet against the mortgage market, dubbed The Greatest Trade Ever in the title of a book about him. However, he has more recently placed losing bets that financial stocks and the US economy will strengthen.

"Gross redemptions before giving effect to additions of capital will be less than eight per cent of firm assets under management, well less than our typical year-end redemption cycle," Mr Paulson said in a letter to investors. They had a Halloween deadline to request their money back.

Paulson & Co's main fund, Advantage Plus, has erased almost four years of gains and is now down 47 per cent since the start of this year after losing about one-fifth of its value last month alone.

However, Mr Paulson has been on a drive to keep existing investors sweet and to lure new money to the funds. On Tuesday, he said that the high-profile economist Martin Feldstein would join the firm as an adviser, bolstering an all-star panel of consultants that already includes the former Federal Reserve chairman Alan Greenspan. The 71-year-old Mr Feldstein was chairman of the Council of Economic Advisers under President Ronald Reagan and has twice led the National Bureau of Economic Research, which determines when US recessions begin and end.

Mr Paulson has also said he will charge no fees on new money invested with his funds until they have recouped losses. The funds are likely to have begun the long claw-back in October, when markets rallied.

News of the relatively modest redemptions quieted critics of Mr Paulson, whose bets have become some of the most closely followed investments in the hedge fund industry. His bets on a calamity in the mortgage market in 2007 netted Paulson & Co funds about $15bn in profits, including $3.7bn for him personally.