October 12, 2011 / 14:00 IST
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% for the year.
Many of Paulson's funds have lost big this year, as the well-known money manager bet wrong that the US 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% of the USD 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% of the assets are owned by the billionaire stock picker and his dozen or so most trusted lieutenants.
But some analysts working in the USD 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% and its Advantage Plus cousin is down 47%-- 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 the hedge fund industry's biggest payday with his USD 5 billion last year will still be able to pay his roughly 120 employees very well considering the management fees he will earn on USD 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.
The billionaire investor had been a possible target of the Occupy Wall Street protesters on Tuesday when they threatened to march to the upper east of New York City to the homes of the wealthiest on Wall Street.
He was spared, according to several witnesses.
In addressing the growing protests against Wall Street, Paulson sent out a statement. "Instead of vilifying our most successful businesses, we should be supporting them and encouraging them to remain in New York City and continue to grow," the New York native wrote.
He underscored that he and his employees contribute plenty to the city's coffers.
"The top 1% of New Yorkers pay over 40% of all income taxes, providing huge benefits to everyone in our city and state. Paulson & Co and its employees have paid hundreds of millions of dollars in New York City and New York State taxes in recent years and have created over 100 high paying jobs in New York City since its formation," he said in the statement.
