Paulson & Co. Inc. is a large, institutionally oriented hedge fund manager that got a lot of attention last year for disappointing returns. The hedge fund management company that produced a 159% return in 2007 from stellar subprime mortgage bets in its Paulson Advantage Plus Fund sustained a -35% return in the same fund in 2011. The company's oldest fund, the flagship Paulson Partners Fund, was down 10% in 2011, and Paulson Credit Opportunities Fund dipped 18%.
Net redemptions across all of Paulson & Co.'s hedge funds last year were less than in 2010, which in turn were less than 2009 redemptions, said a source with knowledge of the company, who asked not to be identified. The company's assets totaled $28 billion as of Dec. 31, but dropped to $23 billion on Jan. 1 when redemptions and performance were factored in, the source said.
Armel Leslie, a company spokesman, declined to comment.
But Agecroft's Mr. Steinbrugge predicted that “any drawdown of 30% or more just is not acceptable and will not be tolerated.”
He said as investors upgrade, they will be looking for hedge fund and funds-of-funds managers with strong risk controls that enabled them to produce positive returns last year despite extreme market volatility and high correlations between asset classes.
One institutional hedge fund manager — Bridgewater Associates LP — produced 15.3% in its Pure Alpha II fund in 2011. It had annualized returns of 14.6% for the 20 years ended Dec. 31.
The institutionally focused hedge fund Renaissance Institutional Equities Fund, managed by Renaissance Technologies Corp., also had strong performance — 35% — in 2011, although net inflows were “negligible,” according to a source who asked not to be identified.
Jonathan Gasthalter, a RenTech spokesman, declined to comment.
Institutional CIOs might need to move fast if they want to upgrade to 2011's best performers, Simon Ruddick, managing director and CEO of hedge fund consultant Albourne Partners Ltd., London, wrote in an e-mailed response to questions.
“Capacity is fast disappearing with those better-known funds that performed well in 2011, so opportunities to switch into them may well become limited. After way more talk than action, 2012 might see some shift to smaller funds,” he said.