Paulson & Co. Well On Its Way To Family Office Status

Things are looking bleak for Johnny Paulz.
(Getty Images)

(Getty Images)

Hedge fund managers make the transition from managing other people’s money to solely their own for a variety of reasons. Some wish to retire. Some see unfavorable market conditions and wish to free themselves of the pressure of managing outside capital. Some are forced to by Preet Bharara. And some are forced to by their own clients, who decide on account of the hedge fund manager not being very good at his or her job, that they don’t want to be clients anymore.

This process of enforced family-officeness is in full effect at Paulson & Co. The firm’s assets have plunged from $38 billion—of which $19 billion was outside capital—to just $10 billion, of which 80% is John Paulson’s capital. Six billion dollars have disappeared in a perfect storm of market losses and redemptions in the last 18 months alone. It seems like the perfect time for Paulson to join the George Soroses and Stanley Druckenmillers of the world and fade into well-earned obscurity, perhaps in Puerto Rico, so as to stop dealing with the endless drumbeat of news reports documenting fleeing or falling assets.

But no: John Paulson will not go out like this. He will find a way to recreate the mortgage-collapse magic that made his name. When he finally throws in the towel, it will be on his terms.

The billionaire has no plans to turn the firm into one that solely manages his own wealth, according to a person familiar with his thinking. He’s opened at least three new funds in the past two years, including a private equity fund with a seven-year lock up….

A successful rebound at his traditional merger arbitrage funds could sway institutional investors to return, said Stan Altshuller, the chief research officer at data-analytics firm Novus Partners Inc.

“Investors are very much attracted to big brands, and Paulson is one of the bigger brands,” said Altshuller. “He is one of the managers that can bounce back.”

Sure, he “can.” But, well, things don’t look great. Why, let’s look at that new p.e. fund, which is looking more and more like the future of the firm.

But at the end of 2016, that fund contained almost all internal money, the filing shows….

As investors fled, Paulson kept putting money in, reinvesting almost all of his performance fees, according to the person. Paulson also donated $650 million in cash during 2013 and 2014 to his private philanthropic foundation, which in turn put most of the money in his hedge funds, tax documents show.

John Paulson Is Struggling to Hold On to Client Money [Bloomberg]