Key Takeaways
- • Paulson & Co. is closing its 2-year-old long-short equity fund, which represented approximately 5 percent of the firm's assets under management, as part of a strategic refocus toward core competencies in merger arbitrage and distressed credit.
- • The long-short equity fund, led by Guy Levy and focused on healthcare and pharmaceutical positions, was up 9.5 percent through May 2017 but has been a drag on overall performance, with the sector responsible for some of the firm's largest losses in recent periods.
- • Assets under management at Paulson & Co. have collapsed by $6 billion since the end of 2015, falling from a peak of $38 billion in 2011 (50 percent of which was external capital) to approximately $10 billion, with only $2 billion now representing outside investor money.
- • Jim Wong, head of investor relations for 14 years, is departing the firm and will be replaced by Tina Constantinides, who joined Paulson 13 years ago, effective August 1, 2017.
- • Founder John Paulson is returning the firm to its original 1994 strategy of merger arbitrage after a string of strategic missteps, with remaining assets now predominantly representing Paulson's personal capital rather than external investor funds.
Summary
Paulson & Co., the investment firm renowned for its prescient 2008 housing market collapse bet, is unwinding its long-short equity fund as part of a broader strategic retreat. According to a letter to investors from founder John Paulson seen by Bloomberg News, the firm is closing the 2-year-old fund to refocus on "core areas of expertise in merger arbitrage and distressed credit, where our assets have been growing."
The long-short equity fund, which represented roughly 5 percent of the New York-based firm's assets under management, was led by Guy Levy and maintained concentrated positions in healthcare and pharmaceutical equities. Despite posting a 9.5 percent return through May 2017, the healthcare and pharmaceutical sector has been responsible for some of Paulson & Co.'s most significant losses, undermining overall fund performance. While the long-short fund was down in 2016, it recovered in the first half of 2017, though this modest recovery failed to offset broader portfolio deterioration.
The fund closure reflects a larger crisis at Paulson & Co. The firm's assets have contracted dramatically by $6 billion since the end of 2015. More critically, the composition of remaining capital has shifted substantially: of the $10 billion currently under management, only $2 billion represents external investor capital. This represents a stunning decline from 2011, when Paulson & Co. peaked at $38 billion in assets, with outside investors accounting for roughly half of that total. The exodus of client capital underscores investor losses of confidence following repeated strategic missteps.
In response to ongoing operational challenges, Jim Wong, the firm's head of investor relations for the past 14 years, is departing. He will be succeeded by Tina Constantinides on August 1, 2017, marking a management transition as Paulson attempts to stabilize operations. The fund closure and leadership changes signal founder John Paulson's intention to return the firm to its foundational strategy in merger arbitrage established when he launched the firm in 1994, abandoning the diversified approach that has generated sustained losses.
The long-short equity fund, which represented roughly 5 percent of the New York-based firm's assets under management, was led by Guy Levy and maintained concentrated positions in healthcare and pharmaceutical equities. Despite posting a 9.5 percent return through May 2017, the healthcare and pharmaceutical sector has been responsible for some of Paulson & Co.'s most significant losses, undermining overall fund performance. While the long-short fund was down in 2016, it recovered in the first half of 2017, though this modest recovery failed to offset broader portfolio deterioration.
The fund closure reflects a larger crisis at Paulson & Co. The firm's assets have contracted dramatically by $6 billion since the end of 2015. More critically, the composition of remaining capital has shifted substantially: of the $10 billion currently under management, only $2 billion represents external investor capital. This represents a stunning decline from 2011, when Paulson & Co. peaked at $38 billion in assets, with outside investors accounting for roughly half of that total. The exodus of client capital underscores investor losses of confidence following repeated strategic missteps.
In response to ongoing operational challenges, Jim Wong, the firm's head of investor relations for the past 14 years, is departing. He will be succeeded by Tina Constantinides on August 1, 2017, marking a management transition as Paulson attempts to stabilize operations. The fund closure and leadership changes signal founder John Paulson's intention to return the firm to its foundational strategy in merger arbitrage established when he launched the firm in 1994, abandoning the diversified approach that has generated sustained losses.
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