Continuing Growth of Paulson & Co. Raises Concerns
|March 29th, 2010||
|John Paulson’s hedge fund Paulson & Co. with $32 billion under management is the third largest in the world after JP Morgan Chase & Co. and Bridgewater Associates LP. Paulson is different from many of its competitors because it makes concentrated bets and continues to add new cash, causing concern about being too large.|
According to a recent Bloomberg article, growing funds may have more difficulty in seeking out investments large enough for positive returns and for trading at proper prices. Paulson’s $19 billion Advantage funds exploit bankruptcies, distressed debt, and mergers but have been returning less than similar funds in 2010 after topping them in 2007 and 2008. While similar funds returned an average of 6.6% in 2007 and lost 22% in 2008, Paulson’s bet against subprime mortgages led to a 160% return in 2007 and a 37% return in 2008 from The Advantage Plus fund. However in 2009, this fund only returned 21% while competing funds returned 25%.
Soros Fund Management LLC and Tiger Global Management were the only hedge funds with over $20 billion under management in 1998 and both stopped managing external investors’ assets by 2000 after major losses. Chris Shumway’s stock hedge fund, Shumway Capital Partners, has been closed to new money since it reached $8 billion while credit fund King Street Capital Management LP announced that growth will be regulated now after exceeding $20 billion.
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