By Svea Herbst-Bayliss
BOSTON Dec 19 Billionaire hedge fund manager
John Paulson has gotten another dose of bad news.
Morgan Stanley Smith Barney is recommending that its
financial advisers pull client money out of Paulson's Advantage
and Advantage Plus funds, a person familiar with the matter said
Morgan Stanley had been watching Paulson's performance for
months and prepared for this move when it told advisers last
spring to stop putting new money into those funds, advisers with
the firm have said.
Since then losses at the Advantage funds have deepened to
double digits, and now the company is recommending, but not
requiring, that its advisers tell their wealthy clients it is
time to turn their backs on the 57-year-old Paulson.
Morgan Stanley declined to comment.
The move, which is expected to shave some $100 million in
assets off the $5.7 billion Advantage and Advantage Plus funds,
may be more humiliating than truly harmful for Paulson's $20
billion firm. Paulson, who makes his money betting on events
such as mergers and spinoffs, became a market darling after
earning billions by betting against the overheated housing
market in 2007. He then won big again with his bet on gold.
People familiar with Paulson's firm said that expected
inflows should easily offset the decline next year.
Additionally, Morgan Stanley Smith Barney advisers are still
able to put their investors' money into two other Paulson funds
-- the Paulson Partners fund, which specializes in
merger-arbitrage and is up about 7 percent through November, and
the Credit Opportunities fund, which is up about 6 percent
Investors on the Morgan Stanley platform have already asked
to pull out about $36 million of the $100 million that is
expected to be redeemed, the person familiar with the numbers
The move comes only months after Citigroup's private bank
decided to withdraw $410 million. But Bank of America's Merrill
Lynch unit told investors in August that it was sticking by
Paulson and had no plans to exit.
Most recently, Paulson's funds were hurt when gold prices
dipped. Losses in Europe, where Paulson had previously bet on a
sovereign default that did not occur, also weighed on the funds.