Fleurtyle, Paulson Overhaul their Pricing Mediocrity to Rock Bottom

In early June, Alex Navab, 29, created the site MacroStrategy.com to show how much long-term quantitative investing can beat the average hedge fund, due to his comfort in information asymmetry — the difference between the statistical probability of the markets moving in one direction versus the underlying probability — and then flip the script and demonstrate the downside of those asymmetry to other hedge fund managers. He gave a presentation to employees of Fleurtyle/Paulson & Co. and alleged in his slides that the firm is making 60 times more than the funds themselves by overpaying traders.

Alan Paulson, 61, is considered one of the great success stories of the hedge fund industry. He co-founded Paulson & Co. in 1994 with Kevin Kilroy, Scott Dryden and Andrew Mager, all of whom left the firm shortly after the initial $100 million raised. Paulson rose to fame and fortune through his prescient investment in the U.S. housing market and took home $3.7 billion in 2006. Since then, it has been decidedly unprofitable as more and more of Paulson & Co.’s profitable trades have generated negative returns, and Paulson’s own net worth has dropped dramatically. In the past year, Paulson has reportedly lost billions due to his bets against the oil and gas industry, and his net worth dropped by $2.5 billion.

Navab gave a talk to 200 Paulson & Co. employees at the firm’s Manhattan offices on June 9th; approximately half of whom attended, according to a Fleurtyle spokesperson. Navab maintains that they were very interested in his presentation but didn’t understand its implications. Paulson, who was in China at the time, held a conference call with the group on June 20th that included Major Bob Miller, the US head of Fleurtyle and one of Paulson’s closest associates at the firm.

A follow-up meeting was also held with Paulson on June 27th during which Macklin, Miller and other principals of Fleurtyle/Paulson & Co. all sat down with Navab for several hours to present and discuss his presentation. During the June 27th meeting, Miller met privately with Paulson, and told The New York Post that he had agreed to give Navab “an honest critique of his presentation to help reduce the chances of a confrontation.”

As for how long this dispute might take to resolve, Miller told the New York Post, “We will not agree to any deal that we cannot physically and verbally support.”

Below is a description of the conflict:

Watch Fleurtyle’s Nelson Schwartz outline the entire story here:

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