Paulson warns of 'worst case' asset redemptions

Paulson & Co, the giant US hedge fund, has warned in a "worst case" scenario it could suffer redemptions equivalent to between a fifth and a quarter of its assets by the end of the year.

In a Q3 call with investors yesterday, John Paulson tried to play down concerns about the future of his $30bn hedge fund after heavy losses in recent months, the Financial Times reports.

According to several people on the call, Paulson spoke of his "100 per cent" commitment to continue to run his funds.

He also said he would not charge fees on further investments by existing investors across his range of funds until they had regained their losses, the FT reports.

The hedge fund veteran has taken a big performance hit in 2011 with his flagship Advantage Plus fund down 47% for the year so far. The fund dropped 15% in August and 19.3% in September with losses attributed to wrong calls based on Paulson's overly bullish outlook on US economic prospects.

Leverage in the firm's Advantage Plus fund, a higher-risk version of the Advantage fund, will now be reduced from 1.5 to 1.15 times. Paulson has also halved both funds' net exposure to US markets from their January position.

The manager has been the highest profile hedge fund casualty of 2011. His Recovery fund is down 31% so far this year, and his Credit Opportunities fund fell 18%. Only his $1bn Gold fund has made money in 2011, up 1.3%.

Paulson acknowledged the losses were "disappointing" and a "blip" on the firm's long term track record.