John Paulson Criticizes Hedge Fund Managers for Restricting Redemptions

Bloomberg reported that Paulson & Co's John Paulson, who runs the $36 billion hedge fund, that made over $3 billion last year on the subprime mortgage crisis, is angry that colleagues in the hedge fund business are blocking clients’ attempts to get their money back.

"We think it’s a mistake for managers to use gates and other tools to limit investor access to their funds. While we recognize the difficulties of the current environment, we think it is a manager’s responsibility to raise liquidity to meet the redemption needs of their investors," Paulson wrote in a 2009 outlook to investors.

It is easy for Paulson to make his case for client-friendly policies because his funds produced positive returns again this year. His largest fund, the $13 billion Paulson Advantage Plus rose approximately 38% through December 19th, according to the undated report.

In the letter, Paulson continued to criticize other hedge fund managers, saying there have been several of opportunities to raise cash. Paulson said, "Even in opaque areas of the markets such as in bank debt, mortgage-backed securities and other distressed securities, we see hundreds of millions of dollars trading every day."

Paulson was "especially surprised" by managers who restricted redemptions in cases where the withdrawals accounted for less than 25% of AUM, and where "the managers have the cash and one of the stated reasons for restricting withdrawals is so the manager can continue to invest in new opportunities."

Paulson said that while he’s still bearish on the overall economy, he's buying distressed mortgages and distressed debt, and is interested in investing in bankruptcies, debt restructurings, strategic mergers and financial recoveries.

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