John Paulson made billions of dollars anticipating the 2008 financial collapse. But after running into difficulties in recent years, Mr. Paulson will convert his hedge fund firm into a private investment firm that runs only his family’s money.
Mr. Paulson’s decision to hand his investors’ their cash back and turn his firm into a family office has been long telegraphed as assets at his firm have fallen and returns declined. He had a strong year last year, in which his key merger hedge fund rose nearly 30%. But the fund is down over 10% so far this year, according to someone close to the matter.
Investors have been leaving his funds for nearly a decade. Paulson & Co. managed less than $9 billion last year, most of which is his own money, down from $38 billion in 2011.
Mr. Paulson is the latest investing star to make the move.
Over the past few years, well-known investors including Leon Cooperman, Eric Mindich and Jonathon Jacobson have returned billions in client money and converted their own firms into family offices, amid a period in which the hedge fund industry has failed to keep up with broader stock and bond markets. Unusual volatility, efforts by the Federal Reserve to bolster markets, and a rush of news and other data that can be hard to digest, have all been factors making it harder for traditional investors to keep up.
Mr. Paulson’s decision was first reported by Bloomberg News. The 64-year-old investor wouldn’t comment.
“The last 26 years of running an asset management firm have been thoroughly rewarding,” Mr. Paulson said in a client letter. “Recent volatility notwithstanding, I am proud of our long-term returns.”
Mr. Paulson achieved investing fame in an unlikely fashion.
Born in Queens, New York, Mr. Paulson started his firm in 1994 but labored in relative obscurity for years. A merger-arbitrage specialist, Mr. Paulson churned out respectable gains betting on companies likely to see previously announced mergers completed or receive higher takeover bids, considered among the safest forms of investing.
In early 2006, Mr. Paulson, then 49, became focused on the spectacular surge in U.S. housing prices. Working with an analyst named Paolo Pellegrini, Mr. Paulson seized on the idea of buying credit-default swaps, a form of insurance, to wager against the riskiest mortgage debt.
The trade paid off in spectacular fashion, netting $20 billion in profits for clients and employees in 2007 and 2008. Mr. Paulson’s personal tally for 2007 was nearly $4 billion, considered the largest one-year payout in the history of the financial markets.
Mr. Paulson followed that trade with a prescient, early bet on gold, adding to his wealth. Investor interest surged and Paulson & Co. became one of the largest hedge funds in the world.
Inconsistent and often disappointing performance soon ensued. Mr. Paulson shifted from his traditional strategy to invest in gold miners, banks, pharmaceutical companies and other kinds of companies, trades that sometimes didn’t work out.
Two years ago, Mr. Paulson gained recognition for something very different: paying among the largest-ever personal tax bills. After deferring the bulk of his profits from his subprime-mortgage trade, he made federal and state tax payments of about $1.5 billion, a figure so large it dwarfed the maximum amount the Internal Revenue Service allows taxpayers to pay with a single check.
Over the past years, Mr. Paulson has been regularly seen walking in Central Park. He has been a financial supporter and hosted a fundraiser for President Donald Trump. He remains a billionaire, but his firm has declined in prominence. Major recent holdings include Bausch Health Cos Inc., down nearly 40% so far this year, Horizon Therapeutics PLC, up approximately 53%, and AngloGold Ashanti Ltd, up 30%.
“With one chapter closing, a new one is beginning for me and I look forward to continuing as an active participant in financial markets,” Mr. Paulson wrote to his investors.
