I have a quote or two in this MarketWatch piece about “celebrity hedge fund managers” – I think the criticism of John Paulson has been way too harsh and totally relentless. People forget that a) there’s a human being beneath the “hedge fund titan” veneer and b) the guy is a real investor and real investors stumble, all of them. All of us.
But when you stumble with tens of billions in assets under management, of course the glare will be brighter and the schadenfreude factor will be upped – but when is enough enough?
Here’s what I had to say in JP’s defense:
“This is no different than Kardashians, Hilton Sisters, Lohan — none of them are working actresses, models or performers of any kind with any body of work people are interested in — but people have been conditioned to click their names and prick up their ears when their exploits are being discussed,” says Brown.
“The shame of it is that Paulson is a real investor underneath all the sensationalism. He’s been around for decades and has had solid success, despite the boom/bust cycle he’s now enduring.”
“And so now, as is always the case, a great investor like Paulson is burdened by the fact that he took in his maximum AUM right after his best year ever. And so the media spins it as he’s a money-loser. It’s pretty unfair from that standpoint.”
Many great investors take in a huge amount of money right after a major win streak – in hedge funds and in mutual funds too (see: Berkowitz, Miller). There is plenty of blame to go around for when the magic wears off. The investors who are flinging themselves at these “hot hands” need a 101 lesson in Mean Reversion – not all the blame belongs to the manager who is simply doing his best.