Paulson Kicks Competitors While They're Down

John Paulson, of hedge fund firm Paulson & Company, in recent investor communications has lambasted his competitors for blocking investor redemption requests, something his firm has not done. His firm has actually fared well in 2008, thus hasn't been pressured by substantial redemptions.

“We think it’s a mistake for managers to use gates and other tools to limit investor access to their funds,” Mr. Paulson wrote, according to Bloomberg. “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.”

Of course, Mr. Paulson’s funds are showing profits this year, even as many of his rivals’ funds are flailing, and his investors are unlikely to be pounding the door for their money back. In November, Mr. Paulson’s firm, Paulson & Company, held an opulent dinner in New York to celebrate his funds’ returns and outline his strategy for the coming year.

In his recent investor letter, Mr. Paulson also said that he was “especially surprised” by managers who blocked or limited withdrawals in cases when the requests accounted for a quarter or less of assets under management, Bloomberg said, and where “the managers have the cash and one of the stated reasons for restricting withdrawals is so the manager can continue to invest in new opportunities.”

Winning is hard. Winning gracefully even harder.

Comments

[Hedgeblogs:]

He is right. Its an abuse of the terms under which investors originally committed.

Jan 01 01:44 PM

[Sapphire:]

If some hedge funds block redemption requests, it may hurt investments in all hedge funds, period -- even the good ones.

Jan 01 10:48 PM

[Reverse Mer...:]

Redemption requests are what exposed Madoff. I say, go ahead, make those requests and hope you get your money back.

Jan 02 01:02 AM

[headlocal:]

Well, gee, duh, Stalwart.

If we were Paulson, our target audience won't be S-A commentators, but big-$$ managers contemplating where to deploy their next infusion of money. And I'm sure they are already receptive to J.P.'s view.

His secondary audience is his investors who don't have extra cash to deploy, but who may be apprehensive that he may be about to "postpone" redemptions. This both reassures them, and lowers any temptation toward preemptory redemptions. Some of them may be getting daily calls from nervous clients, the type who are buying no-interest government paper these days.

Reverse Merger already cited the Madoff effect.

I don't see Paulson kicking competitors at all, just asserting that his is still a viable enterprise. Now, if I see him show up on Capitol Hill arguing for a bailout, I'll be happy to admit I was unduly optimistic.

Jan 02 06:54 AM

[prudentinve...:]

If he's made a profit for his investors in this environment, he desrves respect, not derision.

Halting redemptions, even if part of the agreement, is bad and reduces confidence in the fund.

Jan 03 05:15 PM