Paulson braces investors for the worst
* Paulson not expected to take in new moneyBy Svea Herbst-Bayliss and Katya WachtelBOSTON/NEW YORK, Oct 11 (Reuters) - John Paulson could face
a two-pronged problem in the coming weeks as outside investors
and possibly even some of his own employees walk in the wake of
the hedge fund firm’s worst-ever returns.The firm told investors on Tuesday that as much as a
quarter of its assets could depart in a “worst-case” scenario
if all people who are eligible cash out by the end of the
year.Paulson’s team hosted a call to go over last month’s
results only a few days after he notified investors that one of
Paulson & Co’s biggest funds is down 47 percent for the year.Many of Paulson’s funds have lost big this year, as the
well-known money manager bet wrong that the U.S. economy would
revive sooner rather than later.However, in the days leading up to the investor call, some
on Paulson’s team had been telling brokers and others on Wall
Street that at least 20 percent of the $30 billion in assets
the fund manages could be redeemed. The deadline to get out of
the biggest funds — the Advantage funds — is coming up on
Oct. 31.Outsiders have long said Paulson is in no danger of
collapsing because about 40 percent of the assets are owned by
the billionaire stock picker and his dozen or so most trusted
lieutenants.But some analysts working in the $2 trillion hedge fund
industry say with Paulson’s funds slumping so badly, some of
his top employees could look to leave at year’s end and cash-in
their chips.Some of Paulson’s employees — whose money has been locked
up for years — will receive the final installment of their
bonus for 2008 this year, say people familiar with the hedge
fund.For some time Paulson had structured bonuses to vest over a
four-year period. That practice has been scrapped this year so
that bonuses for 2011 — a year where Paulson’s flagship
Advantage Fund is off 32 percent and its Advantage Plus cousin
is down 47 percent — would be paid immediately.Consultants who track personnel movements in the hedge fund
industry believe that there will not be a mass exodus from
Paulson. The man who earned $5 billion personally last year
will still be able to pay his roughly 120 employees very well
considering the management fees he will earn on $30 billion in
assets.One recruiter in the industry said he has not yet received
any resumes from Paulson employees.”He has huge management fees and his team will likely still
be compensated very well so I think they will stick it out —
everyone can have a bad year,” said the person who asked not to
be named because he is fielding calls from many hedge fund firm
employees.One critical point is that industry consultants and bankers
on Wall Street are fairly sure Paulson will not be able to
attract new money now even though he promised not to charge
performance fees on new money.
