John Paulson closes his fund to outside investors and becomes a family-run fund.
“After considerable reflection and careful thought, Paulson & Co. will convert into a private investment office and return all external investor capital” wrote John Paulson in a letter to investors seen by Bloomberg.
John Paulson closes his fund underscores a growing trend of other hedge funds also closing their business to outside investors
They are struggling to remain relevant in a world where the central banks’ policy of endless quantitative easing makes hedging risk irrelevant, an unnecessary expense.
The market has got its fix with over $18 trillion in global stimulus snorted up the nostrils of global markets, the central banks in cahoots with their asset purchases (QE) to infinity, has ensured a melt-up in risk assets, while the fundamental meltdown.
“After considerable reflection and careful thought, Paulson & Co. will convert into a private investment office and return all external investor capital”
In short, passive investing, buying an Index fund and holding it over an extended period has become virtually risk-free, courtesy of the central banks QE to infinity policy.
Why then pay the fees of an expensive hedge fund manager?
With the risk being backstopped by the central banks perhaps that is why John Paulson closes his fund along with many others which could continue throughout 2020
Hedge fund research reported on June 30 that a total of 304 funds liquidated around the world in the first quarter. Moreover, it was the highest level of liquidation since the fourth quarter of 2015 when 305 funds shut down. In other words, hedge fund closures are 50% higher than it was during the last three months of 2019 when 198 funds were liquidated, HFR data show. Investors pulled $33 billion out of hedge funds in the first quarter, HFR reported earlier, marking the fourth-largest outflows ever.
“Hedge fund closures climb to their highest rate since 2015”
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As John Paulson closes his fund along with many other peers there is not a lot of new blood coming into the industry
At the same time that 305 funds shut down only 84 new funds opened for business in the first quarter of 2020, the slowest pace of new launches since the financial crisis when 56 new funds opened for business in the fourth quarter of 2008, HFR said. The pace of new launches fell off even from late 2019 when 89 funds opened in the last three months of the year.
So John Paulson closes his fund converting into a family office at a time when more hedge funds went out of business during the first three months of 2020 more than at any other time since 2015 as the coronavirus and the great global lockdowns that followed led to heavy losses and investors pulling out billions in assets.