Paulson Criticizes Hedge-Fund Managers for Limiting Withdrawals

And academic studies would tend to back Paulie up: limiting redemptions tends to lead to greater losses.

In his letter, Paulson criticized his fellow managers, saying there have been plenty of opportunities to raise cash.

“Even in opaque areas of the markets such as in bank debt, mortgage-backed securities and other distressed securities, we see hundreds of millions of dollars trading every day,” he wrote.

Paulson was “especially surprised” by managers who restricted withdrawals in cases when the requests accounted for a quarter or less of assets under management, and where “the managers have the cash and one of the stated reasons for restricting withdrawals is so the manager can continue to invest in new opportunities,” he wrote.

Sounds like the point he is making is that many fund managers are making an elective decision not to return money purely to avoid showing losses in the near term.