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John Paulson: I'll Get The Losses This Year, Next Year We Go Dutch?

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When one is an investor in a hedge fund, letters from the top that include lines about being "disappointed," "clearly wrong in our judgment," and this year being notable for being “the worst in the firm’s history" are tough to take. Sure, they're slightly more palatable than those that attempt to explain why the last month/quarter/year went ass-bleedingly bad by deflecting the blame with something like, “We lost it all but you can take solace in knowing it’s not us, it’s the market. The global financial markets are wrong, and we happy few at [insert firm here] are correct, in a way that has yet to reveal itself but rest assured, is coming” and/or offer a silver-lining à la,“Now hear the great news: we’ve turned every dollar you invested in the beginning of the year into 15 cents," but whether you get a "sorry" or "sorry, we're not sorry" letter doesn't really much matter. In both cases, a whole bunch of your money is gone. Generally speaking. If you're speaking of hedge fund Paulson and Co, however, such is not the case! According to the Times, the fact that the firm has suffered its worst performance since inception is actually of little matter to investors, as John Paulson has "guaranteed" he will be covering their losses, whatever they may be, come year-end. For the purposes of not getting anyone's hopes up, it should be noted that the guarantee only applies to one investor. Everyone else, past performance yadda yadda still applies to you- better luck next year.

Mr. Paulson, a member of the 92nd Street Y’s board, has guaranteed he will cover the Y for any losses it incurs in his funds. Barring a sharp recovery, Mr. Paulson will have to write a personal check to the organization for several million dollars. “This is a very uncommon arrangement,” said Andrew M. Grumet, a lawyer specializing in philanthropy. “But the 92nd Street Y isn’t your average nonprofit, and John Paulson isn’t your average money manager.”

One of New York’s premier cultural institutions, the 92nd Street Y also houses an exclusive preschool and nursery school, which Mr. Paulson’s daughters attended. Tuition runs as high as $27,150 a year. The Y, on the Upper East Side of Manhattan, is headed by a board that includes some of best-known names in business: Bronfman, Lauder, Tisch...As a result of such losses, he could owe the 92nd Street Y as much as $4 million, according to two people with knowledge of the agreement who requested anonymity because they were not authorized to discuss it. Yet given Mr. Paulson’s wealth — Forbes magazine estimates his fortune at $15.4 billion — a $4 million check would be pocket change for the 55-year-old native of Queens...Mr. Paulson is the 92nd Street Y’s largest outside manager, running about $10 million of the school’s $37.9 million in investments, the two people said. “We’re certainly not ashamed of any of this,” said Sol Adler, the executive director of the 92nd Street Y. “This institution has particularly generous board members, including John and a number of others.”

For those clients disappointed that the generosity does not extend to them, again, please refer yourselves to the fine print. You knew the risks going into this thing. Moving forward, though, perhaps consider any additional money being invested under the "Helping High-Water Marks Happen Foundation"? Might help your cause.

For 92nd St. Y, a Break From Wall St. Worry [Dealbook]


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