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This week, everyone's talking about John Paulson. The hedge fund manager, known for making a killing off of the housing bubble, was asked to face investors on a call with Bank of America prompted by his fund's consistent dismal performance.
At least, that's what it seemed like. Citigroup severed a $410 million relationship with Paulson just last week. The Street is beginning to worry.
But before anyone hits the panic button, know that history has shown us that circumstances must be far more dire than a few redemptions for a hedge fund to go completely under.
We've compiled a list of the most dramatic collapses in hedge fund history so you can see for yourself. Paulson isn't anywhere close to these guys — at least, not as far as we know.
*Thornton McHenry also contributed to the reporting of this piece.
Bayou Group
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The Beginning: Founded by Samuel Israel III in 1996
The Height: In 2003, the funds claimed to have made $43 million. Israel told investors that Bayou would grow to roughly $7.1 billion by 2006.
The End: Bayou was revealed as a Ponzi Scheme in 2005, when the SEC requested that the court freeze the defendants' assets and accused them of claiming to have made $43 million in four hedge funds in 2003 when they actually lost $49 million.
When Bayou was unmasked as a fraud in 2005, many people lost a lot of money but the media was given the pleasure of meeting Sam Israel, a bizarre character who, after conning almost half a billion dollars from investors, faked his own suicide in 2008 before being eventually recaptured and sentenced to 22 years in prison.
Returns on investments at Bayou were neither made public nor genuine as it was discovered that Israel created a dummy corporation to audit his own fund.
Source: Bloomberg and Forbes and CNN
Highland Capital Management "Crusader Fund"
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The Beginning: Founded by James Dondero and Mark Okada in 1993.
The Height: The "Crusader Fund" had annualized average returns of 12.7% and held $1.5 billion in 2006.
The End: Wound down the "Crusader Fund" in October of 2008.
Dallas-based Highland Capital Management made a lot of money in The Nineties and "Early Aughts" by rolling out a number of funds under the Highland Capital banner, allowing them to trade on everything from commodities to distressed assets.
But the fiscal crisis of 2008 forced Dondero and Okada to shut down their flagship Crusader Fund in "an orderly fashion" after "unprecedented market volatility and disruption."
Assets in the Crusader Fund were valued at approximately $360 million when the fund when the shuttering (which caused a lawsuit) occurred.
Source: Bloomberg
Peloton Capital
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The Beginning: Founded by Ron Beller and Geoff Grant in 2005
The Height: Managed $3 billion in assets in 2006, the year it returned 87% to investors.
The End: Liquidated in 2008.
Beller, a former Head of the Fixed-Income Currency and Commodity Sales Group at Goldman Sachs returned roughly $2 billion of Peloton's AUM to clients when he and former partner Geoff Grant Liquidated the fund in 2008.
Even though he had some unwanted excitement during his time with Goldman, Beller had a pretty great gig there when he left in 2005 to found Peloton with Geoff Grant. The subprime mortgage crisis caused the fall of Peloton and cut deeply into Beller's net worth.
See the rest of the story at Business Insider
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