John Paulson is one generous hedge fund manager. Last year, he guaranteed that the 92nd Street Y, a premier cultural institution in New York City, would not have to endure any losses sustained from his fund (Paulson is a member of its board). He volunteered to cover its losses and reimburse the organization for any fees. This was huge considering that Paulson’s performance last year left something to be desired. His Advantage Plus fund lost over 50% last year and his other funds didn’t fare much better. In other words, Paulson may well have had to write a personal check to the group for several million dollars.
Now, as uncommon as this arrangement may be, non-profits do get a lot donations, especially when hedge fund managers are on their boards. In the case of the 92nd Street Y, board member Curtis Schenker, the chief executive of Scoggin Capital Management, and Ricky Sandler, the head of Eminence Capital, whose wife serves as a director, promised the same.
But, now Paulson is doing something completely different.
In spite of the fact that the major losses his firm incurred last year will mean that it takes years before it clears the high-water mark and Paulson and his colleagues can start collecting performance fees again, the staff at Paulson & Co can expect bonuses this year, as long as the numbers are in the black. “Paulson recently told some employees he would reset the firm’s internal high-water mark to zero as of Jan. 1, said the person familiar with the matter, effectively meaning that if the company’s funds are in the black for 2012, those employees can collect bonuses pegged to this year’s returns and not be dragged down by last year’s losses,” reported CNBC. “Paulson will pay for those bonuses himself.” The gesture is generous, without a doubt, but it will also go far to secure goodwill amongst his employees, possibly even preventing some from leaving that might have otherwise.