Bank of America Merrill Lynch is telling its financial advisers to pull clients' money out of billionaire hedge fund manager John Paulson's Advantage Funds and said they are not permitted to put new money into one of his other portfolios. The bank said it has reviewed both funds and is worried about their concentrated bets on illiquid investments, which has made them riskier, according to a letter seen by Reuters.
Paulson's New York-based Paulson & Co has made bets on Puerto Rico, expecting the island to emerge from its debt crisis, as well as on Greece. The firm has also made bets on mergers in the pharmaceutical industry. Customers at Bank of America's wealth management division who put money into Paulson's Advantage fund will get their money back in late September or early October, the bank told its financial advisers in the letter.
At the same time, Bank of America is prohibiting clients from putting new money into the Paulson Special Situation fund, as that portfolio has been placed on a watch list. The move was first reported by the New York Times. A Paulson spokeswoman reached by Reuters declined to comment.
The bank said that Paulson has agreed not to make any new private equity investments in the portfolio, which was launched to bet on the recovery of the housing sector in the United States. It has since made broader investments outside of the United States. The bank's decision represents bad news for one of the industry's biggest investors - Paulson & Co oversees $20 billion - only a few years after the manager made headlines with multi-billion dollar payoffs on savvy bets against an overheated housing market and that gold would rise.
Three years ago, Morgan Stanley told its financial advisers to pull client money out of the Paulson Advantage funds. That shaved $100 million off the funds' $5.7 billion in assets. Those assets have dwindled since then, in part due to fluctuating returns, and now total around $2.5 billion. A person familiar with the matter said Bank of America's decision could cut assets by $81 million. The Advantage fund was up 2.2 percent in the first half of the year. Numbers for July have not been released.