John Paulson, the billionaire investor who rose to fame during the financial crisis with a lucrative bet against US subprime mortgages, is closing his hedge fund to external investors after years of lacklustre performance.
“After considerable reflection and careful thought, Paulson & Co. will convert into a private investment office and return all external investor capital,” Mr Paulson wrote in a letter to investors seen by the Financial Times. “Recent volatility notwithstanding, I am proud of our long-term returns”.
He is the latest high-profile industry figure to take his fund private.
Veteran hedge fund manager Louis Bacon told investors in his 30-year-old Moore Capital Management late last year that he would return outside capital, citing fee pressure and a difficult trading environment.
Mr Paulson said in January last year he would consider turning his firm into a family office managing his personal wealth “in the next year or two”. Paulson & Co closed its London operations shortly after, the FT reported.
In his letter to clients Mr Paulson highlighted some of the firm’s trading milestones, including the subprime crisis and profits made during the recovery. “I look forward to continuing as an active participant in financial markets,” he wrote.
Mr Paulson launched his firm in 1994 but he rose to prominence more than a decade later when he made an estimated $20bn on the collapse of the subprime mortgage market, dubbed the greatest trade ever.
In the years after the crisis, he struggled to match this success. Failed bets on healthcare stocks, pharmaceuticals and gold prompted investors to flee, cutting Paulson & Co’s assets under management from a high of $36bn in 2011 to $10bn as of January. Less than a quarter of the money currently managed by the firm is from outside investors.
Mr Paulson is part of the old guard of hedge fund managers who made their fortunes before the massive post-financial crisis quantitative easing and government intervention that many claim has depressed their returns and inflated asset values.
Several of his peers have also decided to close their firms to outside investors, including Leon Cooperman of Omega Advisors and Jonathan Jacobson of Highfields Capital Management.
A spokesperson for Paulson & Co declined to comment.