Paulson Ucits fund: will Europe's selectors invest in it?

The news this week that US hedge fund legend John Paulson is teaming up with Deutsche Bank to launch a Ucits III fund was one of the biggest fund stories of 2010, yet selectors have reacted stoically.

He is one of the world's best known and most successful fund managers; his Credit Opportunities fund returned 690% in a year during the sub-prime crisis. So why are fund selectors sceptical about the most high profile entrant yet into the Newcits arena?

Andrea Ciaccio from the multimanager team of AZ Funds in Luxembourg is confused as to why Paulson is making the move into Ucits.

'I must say I am sceptical. He is running about $35 billion already, so I don’t see why he is doing this,' he said.

'I will have to see what kind of vehicle it is, maybe it will be limited capacity, maybe it will be institutional only. But there are lots of other hedge fund legends, who you just would not expect to put their funds into a retail space. You dont’t expect these types of managers to lose their aura of exclusivity in this way.'

Ciaccio is actually sceptical about the majority of the current wave of Ucits III hedge fund offerings, and is preferring a 'back to basics' approach, using traditional funds. 'Noone is doing asset allocation themselves, everyone wants to delegate to these Newcits managers,' he said. 'I think it is time to do asset allocation yourself and use the basic building bricks of bonds and equity funds.'

Michael Wimmer, responsible for fund selection at private bank Bankhaus Jungholz, expressed similar concerns to Ciaccio.

'Paulson is obviously a very well known hedge fund star, but I think he may already have too much money from his various investors. So why does he need a Ucits fund?'

Wimmer also believes Paulson's involvement with the Goldman Sachs fraud case will raise ethical questions for people considering investing in his Ucits offering.

Meanwhile, Martin Dilg from Fürst Fugger Privatbank in Augsburg is cautiously positive on the news. 'It could be nice to have one of the best known hedge fund managers in the world in a Ucits III fund, but it is important to find out whether he can deliver performance in the Ucits format. He won't have the same possibilities as he has with his hedge funds.'

In Cologne, Ansgar Guseck from multimanager Sauren thinks Paulson may struggle from 'a liquidity perspective' with Ucits regulations, though he will monitor the Newcits fund when more details are released.

However, he thinks Paulson will not be targeting retail investors, as some press reports have suggested. 'I read in the German press today (Thursday) that Paulson is targeting European retail clients, but I doubt that and think he will be looking more at more at institutional and semi-institutional clients.'