Bank of America tells advisers to pull client money from John Paulson's hedge funds

Memo cites concern over illiquid investments and elevated volatility in manager's Advantage Fund.
JUL 16, 2015
By  Bloomberg
Bank of America Corp. is pulling its wealthy clients' money from one of billionaire John Paulson's hedge funds and reviewing another because of concern that large positions may be hard to sell. The bank sent a memo to financial advisers telling them to withdraw about $80 million from Paulson's Advantage Fund because of illiquid investments and elevated volatility, according to two people familiar with the matter. It also said they shouldn't put any more client money into the firm's Special Situations Fund and put it on heightened review because of concern over some large illiquid investments, said the people, who asked not to be named because the funds are private. (More: Paulson maintains stake in gold fund) “As part of our commitment to our clients, we provide rigorous initial due diligence and ongoing detailed analysis of all funds on our platform, and remain in constant dialog with fund managers regarding changes to the funds or their management,” said Susan McCabe, a spokeswoman at the bank. HOTEL STAKE A CONCERN Mr. Paulson's Advantage Fund gained 2.2% this year through June, after being up 8% through May. The Special Situations Fund lost 3.8% this year through June. (More: Investors pile into hedge funds, pushing total assets close to $3 trillion) One of the positions that concerned the bank was Extended Stay America Inc., the people said. Mr. Paulson is one of the largest owners with 23% of the hotel operator, according to a May 28 regulatory filing. The bank also cited the fund's stake of about 25% in OneWest Bank, which was acquired by CIT Group Inc. earlier this week. Mr. Paulson made almost $1 billion on that transaction across two funds. Bank of America told the advisers they could recommend Mr. Paulson's merger arbitrage fund as a replacement, according to the people. A spokesman for Paulson & Co. declined to comment. The Bank of America memo was reported earlier Wednesday by ValueWalk.

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