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Hedge fund celebrity John Paulson shuts firm to become a family office

Published 07/01/2020, 03:00 PM
Updated 07/01/2020, 03:05 PM
© Reuters.

By Svea Herbst-Bayliss

(Reuters) - Hedge fund manager John Paulson, whose multi-billion payoff on a bet against the overheated housing market a decade ago turned him into an industry superstar, will stop managing money for outside clients and turn his firm into a family office.

"After considerable reflection and careful thought, Paulson & Co. will convert into a private investment office and return all external investor capital," the 64-year old manager wrote in a letter seen by Reuters.

The news had been expected for some time after Paulson & Co's assets had been shrinking, prominent employees left the firm, and performance had been mixed.

Paulson himself hinted at the move toward a family firm, in which the wealthy invest just their own fortunes, in a podcast early last year.

Now he joins a number of prominent fund managers – Carl Icahn, George Soros, Stanley Druckenmiller – who have all returned outsiders' money and freed themselves from the pressures of sending quarterly client letters, talking clients through big positions and being always tethered to the office.

Paulson called his 26 years as a fund manager "rewarding" and said he is proud of his returns and the fact that the firm has been at the forefront of investing in global events ranging from the housing crisis to many block-buster mergers.

He plans to remain active in the markets, the letter said, without disclosing how much money will be returned to clients and whether his firm, headquartered in midtown Manhattan, might cut employees or cut the size of its offices.

"Even the great investors stumble, and when they do, they realize how little they like dealing with outside investor questions and withdrawals. Family office life, unlike family life, often is less filled with drama," said Erik Gordon a professor at the University of Michigan.

A spokesman for Paulson could not be reached for comment.

Bloomberg first reported the move.

At the start of 2020, Paulson & Co oversaw $10.7 billion in assets and noted in a regulatory filing that many of the funds were 100% owned by Paulson himself, suggesting that many outside clients had already left the firm.

Paulson, a soft-spoken manager with a courtly manner, shot to fame when he earned $4 billion off the subprime bet in 2007 and repeated with a $5 billion payout in 2010 on bets the economy would recover.

By 2011, his firm was managing $38 billion and Paulson was a regular speaker at industry conferences and guest at charity events. He donated to favorite causes and become somewhat involved in Republican politics. Central Park, where he often jogs, received $20 million and Harvard University, where he earned his business degree, got $400 million five years ago.

Still Paulson maintained a low profile by refusing most interviews and declining to discuss big investments on television. Some of those bets didn't work out and many clients left after losses on Sino-Forest Corp and drug companies like Valeant. The firm shrunk further when employees including Samantha Greenberg, Sihan Shu, Dan Kamensky, James Wong and Michael Barr moved on.

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