Since the market crash and regulatory responses a decade ago, a number of hedge fund businesses, such as those of George Soros, have switched into family office structures. The latest to take the move is that of John Paulson, renowned for making a killing in the sub-prime mortgage slump.

Yet another hedge fund tycoon is turning a hedge fund business into a family office-type structure. John Paulson, who earned billions of dollars by correctly anticipating the sub-prime mortgage wreck of a decade ago, is hanging up his hat, reports said.
 
The Wall Street Journal (July 1) reported that Paulson’s move is taking place following falls in assets and weak returns. In 2019, one of his funds rose by almost 30 per cent but this year it has weakened to 10 per cent. The newspaper quoted an unnamed source, and added that investors have left Paulson’s funds in recent years. In 2019, Paulson & Co managed less than $9 billion, most of it being Paulson’s own money, slumping from $38 billion in 2011. 

A number of hedge fund figures, such as George Soros, Leon Cooperman, Steven A Cohen, Eric Mindich and Jonathon Jacobson have morphed their firms into family offices, although for different reasons. Soros, for example, stopped managing outside money to avoid his firm being regulated as an investment advisor under the SEC, following new rules imposed post-2008. Another example is Clifton Robbins' switch at his Blue Harbour Group Group business.

Paulson’s decision was first reported by Bloomberg News. The WSJ said that Paulson did not comment.

Paulson began his firm in 1994, specializing in the merger arbitrage space. In 2006 he concentrated on the surge in US housing prices and used the idea of buying credit default swaps, which are insurance-type structures, to hedge against risky sub-prime debt. The bet paid off hugely when the housing market bubble popped. Paulson is said to have netted about $4 billion from this episode. A subsequent correct bet on gold prices also added to his wealth. However, other bets did not work out and his wealth declined. 

Hedge fund sector
Industry data shows that the hedge fund sector, while not without high performers, is having a difficult year so far. According to Chicago-based Hedge Fund Research, new hedge fund launches declined to a near-record low in the first three months of 2020, caused by the onset of COVID-19 and ensuing lockdowns.

New hedge funds launches totaled an estimated 84, the lowest quarterly estimate since the 2008 financial crash. Fund liquidations surged to an estimated 305 in Q1, the highest total since Q4 of 2015 and an increase of over 50 per cent from the 198 liquidations from the prior quarter. 

The investible HFRI 500 Fund Weighted Composite Index® rose by 1.9 per cent in May 2020, taking its year-to-date return to -3.8 per cent, which is at least not as negative as the 11.1 per cent year-to-date decline of the Dow Jones Industrial Average through the first five months of the year.