BusinessWeek: Paulson's $32 Billion Funds Prompt Too-Big Concerns

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Mar 30, 2010
March 29 (Bloomberg) -- John Paulson started the year overseeing $32 billion in hedge funds, third in the world behind JPMorgan Chase & Co. and Bridgewater Associates LP. Unlike many of his biggest rivals, he’s taking in new cash, raising the question of how much money is too much for a hedge-fund manager.

“There’s no doubt that Paulson is a big draw for investors at the moment,” said Richard Tomlinson, founder of London-based Tomlinson Investment Consulting, which advises clients on hedge funds. “As with all managers that bulk up, there’s always the risk of returns becoming mediocre.”

Paulson & Co., the New York-based firm that the former Bear Stearns banker and Gruss Partners trader started in 1994, differs from many large competitors because it makes concentrated bets, such as the wager against subprime mortgages that helped generate $3 billion of profit in 2007. As assets increase, it can get harder for a fund to find investments big enough to drive returns and to trade without distorting prices.

Paulson’s main $19 billion Advantage funds, which primarily seek to profit on distressed debt, bankruptcies and mergers, have lagged behind peers this year and last after beating them in 2007 and 2008. Armel Leslie, a spokesman for Paulson, declined to comment.

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