Key Takeaways
- • Paulson & Co. is closing its 2-year-old long-short equity fund, which represented approximately 5% of the firm's $10 billion in assets under management, to refocus on core competencies in merger arbitrage and distressed credit.
- • The long-short equity fund, led by Guy Levy and focused on healthcare and pharmaceutical investments, was up 9.5% through May 2017 but has underperformed relative to the firm's strategic priorities amid broader asset decline.
- • Paulson & Co.'s assets under management have collapsed by $6 billion since end of 2015, falling from a peak of $38 billion in 2011 (with $19 billion in outside capital) to $10 billion today, with only $2 billion representing client money and the remainder being founder John Paulson's personal capital.
- • Jim Wong, head of investor relations for 14 years, is departing the firm, with Tina Constantinides—an employee of 13 years—assuming the role effective August 1, 2017.
- • The fund closure reflects founder Paulson's strategic retreat to the merger-arbitrage strategy that established the firm's reputation in 1994, after experiencing significant losses in healthcare sector bets and broader portfolio underperformance.
Summary
Paulson & Co., the hedge fund firm renowned for its prescient 2008 housing market short, announced the closure of its long-short equity fund as part of a strategic repositioning toward its core merger-arbitrage and distressed-credit competencies. According to a letter from founder John Paulson seen by Bloomberg News, the fund shutdown reflects a deliberate refocus of capital allocation following deteriorating asset levels and underperformance in peripheral strategies.
The shuttered long-short equity fund, managed by Guy Levy, constituted roughly 5% of the firm's current $10 billion asset base. While the fund generated a 9.5% return through May 2017, its focus on healthcare and pharmaceutical bets—sectors that have inflicted some of Paulson's costliest recent losses—rendered it inconsistent with the firm's evolving strategic priorities. Though the fund posted gains year-to-date through May, it had declined in 2016, making it a drag on overall performance.
The fund closure represents a more dramatic deterioration in Paulson & Co.'s fortunes. Since the end of 2015, assets have contracted by $6 billion—a striking reversal from the firm's 2011 peak of $38 billion, at which point outside investors controlled approximately half the capital base. Today, of the $10 billion remaining under management, only $2 billion derives from client capital, with Paulson's personal fortune comprising the remainder. This dramatic shift underscores mounting investor departures as the firm faced a succession of strategic missteps across its portfolio.
The leadership transition compounds the strategic recalibration. Jim Wong, who headed investor relations for 14 years, is departing effective immediately, with Tina Constantinides—a 13-year company veteran—assuming his responsibilities on August 1, 2017. The staffing transition and fund closure signal management's commitment to restoring performance by concentrating resources on the merger-arbitrage and distressed-credit platforms where assets have demonstrated growth, implicitly abandoning the broader hedge fund strategy that failed to generate sustainable returns.
The shuttered long-short equity fund, managed by Guy Levy, constituted roughly 5% of the firm's current $10 billion asset base. While the fund generated a 9.5% return through May 2017, its focus on healthcare and pharmaceutical bets—sectors that have inflicted some of Paulson's costliest recent losses—rendered it inconsistent with the firm's evolving strategic priorities. Though the fund posted gains year-to-date through May, it had declined in 2016, making it a drag on overall performance.
The fund closure represents a more dramatic deterioration in Paulson & Co.'s fortunes. Since the end of 2015, assets have contracted by $6 billion—a striking reversal from the firm's 2011 peak of $38 billion, at which point outside investors controlled approximately half the capital base. Today, of the $10 billion remaining under management, only $2 billion derives from client capital, with Paulson's personal fortune comprising the remainder. This dramatic shift underscores mounting investor departures as the firm faced a succession of strategic missteps across its portfolio.
The leadership transition compounds the strategic recalibration. Jim Wong, who headed investor relations for 14 years, is departing effective immediately, with Tina Constantinides—a 13-year company veteran—assuming his responsibilities on August 1, 2017. The staffing transition and fund closure signal management's commitment to restoring performance by concentrating resources on the merger-arbitrage and distressed-credit platforms where assets have demonstrated growth, implicitly abandoning the broader hedge fund strategy that failed to generate sustainable returns.
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