Paolo Pellegrini, the former Paulson & Co. executive who helped that firm make more than $3 billion with bets on a U.S. housing crash, plans to return money to outside investors in his hedge fund after slumping about 11 percent this year, according to a person briefed on the decision.

PSQR LLC, which Pellegrini started last year, plans to give clients their money by the end of next month, said the person, who asked not to be identified because the information is private. Pellegrini will continue to manage his own money, and may reopen the fund to investors later, the person said. PSQR won’t charge fees to existing clients until recouping losses.
The decision comes two days after Stanley Druckenmiller said he will shut down Duquesne Capital Management LLC and retire from hedge-fund management after 30 years. Pellegrini, 53, started his hedge fund last year after helping billionaire John Paulson engineer a bet against subprime mortgages that catapulted their hedge funds to gains of as much as 590 percent in 2007.
At PSQR, Pellegrini runs a macro hedge fund, which seeks to profit from broad economic trends by trading stocks, commodities and currencies. He told clients that he decided to stop managing their money because of the “additional work” required given his bearish outlook on the economy, AR Magazine said, citing an investor letter.
The hedge fund lost 7.9 percent in July, after gaining 62 percent last year, according to the person. The HFRI Macro Index declined 0.19 percent last month and 1.2 percent this year, according to Hedge Fund Research Inc. The index climbed 4.34 percent in 2009, according to the Chicago-based research firm.
Pellegrini, who was born in Italy and has a Harvard Business School MBA, wasn’t reachable for comment. AR Magazine reported the news earlier today.
Alex Patelis, PSQR’s former chief economist, left the Hamilton, Bermuda-based firm in June after 13 months to start his own research company.
Druckenmiller, 57, said he was tired of the stress of managing money for others and frustrated by his failure in the past three years to match returns that had averaged 30 percent annually since 1986. His Duquesne Capital Management LLC, which oversees $12 billion and has never had a losing year, is down 5 percent in 2010.
(Source: Bloomberg)