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Update 1- published in Bloomberg, last Updated: May 10, 2010 22:21 EDT
Update 2 - published in Bloomberg, last Updated: May 10, 2010 14:05 EDT
The Advantage funds, which seek to profit from distressed debt, bankruptcies and mergers, manage about $20 billion. The only inflows the firm will allow in the funds will be to replace withdrawals, according to two clients who participated in an investor conference call today. Details on the closing will be announced in late June. Armel Leslie, a spokesman for the New York-based firm, declined to comment on the call.
Paulson is closing the fund to new investors after a record rally in credit markets. The S&P/LSTA US Leveraged Loan 100 Index gained 1.47 percent in April and this year’s 5.77 percent total return extended a record 52 percent rally in 2009.
Managers usually stop taking new cash when they are concerned that their funds are getting too big to run effectively. They give up the chance to manage more money and earn more fees, usually 2 percent of assets, to protect their ability to produce investment gains, of which they typically take a 20 percent cut.
Paulson’s Advantage Plus fund, the firm’s largest, climbed 6 percent this year through April.
V-Shaped Recovery
Paulson, 54, told investors he expects a V-shaped recovery in the U.S. and that household ownership is the most affordable it has been in 50 years, according to the clients, who asked not to be identified because the call was private. Paulson expects housing prices to rise this year and next.
He called European debt problems “manageable,” and said he expects to find attractive opportunities there as companies go through restructuring.
The stocks of companies emerging from bankruptcy are likely to be the biggest winners, he said. Paulson has invested $15 billion in more than 40 restructurings since 2008, the investors said.
Paulson also said French and German exporters are likely to benefit from a weakening euro, according to the clients.
The U.S. Securities and Exchange Commission sued Goldman Sachs Group Inc. for fraud on April 16, saying it failed to disclose that Paulson & Co. helped choose securities for a so- called synthetic collateralized debt obligation and then wagered that it would collapse. Goldman Sachs told clients the securities included in the deal were selected by ACA Management LLC, an independent third party, according to the regulator.
Paulson & Co. has not been accused of any wrongdoing and was not named in the suit. The SEC said that it didn’t sue the firm because it was Goldman Sachs’s job to disclose to investors how the CDO was constructed.
Hedge funds are loosely regulated private partnerships that can bet on rising or falling prices of any securities.
(To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net)
Update 2: EU Lawmakers Back Risk Board, Delay Hedge-Fund Vote
By Stephanie Bodoni and Ben Moshinsky
May 10 (Bloomberg) -- European Union lawmakers backed plans to create new supervisory authorities, while delaying a vote on hedge-fund legislation that would have stopped EU investors from sending money to funds based in off-shore tax havens.
The European Parliament’s Economic and Monetary Affairs Committee today voted in favor of creating a European Systemic Risk Board and three other authorities to supervise the banking, securities and insurance industries. They pushed the vote on hedge-fund rules back a week.
“We’re building something and this is just at the beginning, the first step,” Sylvie Goulard, a French member of the European Parliament, in charge of the risk board proposal, told reporters after the vote on the supervisory authorities.
The European Commission proposed the ESRB in September to monitor systemic market risk as part of a bid to overhaul financial regulation after the worst financial crisis since the Great Depression.
The vote on revising hedge-fund regulations is now scheduled for May 17.
“More time is needed” to resolve differences before a vote is possible, said Sharon Bowles, the chairwoman of the committee overseeing the legislation.
Proposals Challenged
The Group of 20 Nations last year agreed to tighter fund oversight. The U.S., U.K. and business groups have challenged the proposals, saying they could hurt companies owned by private-equity firms and restrict funds’ use of debt. A report commissioned by the U.K.’s Financial Services Authority said the EU laws would cost companies 4.6 billion pounds ($6.9 billion).
The draft law, known as the Alternative Investment Fund Managers Directive, would force funds based outside the EU to comply with restrictions on bonuses and leverage if they want to market themselves to investors in the 27-nation bloc. Britain is home to about 80 percent of Europe’s hedge funds and 60 percent of its private-equity firms.
“It’s a positive surprise,” Andrew Shrimpton, who advises hedge funds at London-based Kinetic Partners LLP, said of the hedge-fund rule delay. “There are still some serious problems with this directive.”
If adopted as they are currently drafted, the rules could force funds out of the EU, “probably to the U.S., although some to Switzerland and a few to real offshore centers,” said Simon Gleeson, a regulatory lawyer at Clifford Chance LLP in London.
Aging Population
That is a problem because institutional investors such as life insurers and pension funds need hedge-fund investments to generate the returns necessary to support the EU’s aging population, Gleeson said.
Hedge funds and private-equity firms are under scrutiny from lawmakers worldwide who say they are partly to blame for the financial crisis.
U.S. Treasury Secretary Timothy F. Geithner sent a letter to EU Financial Services Commissioner Michel Barnier in March raising concerns the draft law may discriminate against U.S. funds. The law, proposed last year by the European Commission, would restrict funds’ use of debt and limit bonuses.
“It’s a European Parliament decision and we must respect their process.” Barnier said in an interview during a trip to the U.S. “It’s important we reach an agreement quickly, hopefully before the summer. I’m confident we can do so if all sides show flexibility.”
(To contact the reporters on this story: Stephanie Bodoni in Brussels at sbodoni@bloomberg.net)
