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.

Latest News

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave