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Exclusive: UBS Closes Paulson Advantage Feeder Fund – Sources

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UBS AG (UBSG.VX) shut down a feeder fund at the end of July that provided wealthy clients access to billionaire investor John Paulson’s Advantage fund due to the high cost of operating that portfolio, two sources said on Thursday.

The decision comes after Bank of America told financial advisors it is closing off client access to the Advantage fund, amid concerns it is invested in illiquid securities. The $2.8 billion Advantage fund lost 19 percent in 2014 after being caught wrong-footed on a failed pharmaceuticals merger, but was up 2.2 percent in the first half of this year.

“The feeder fund into the Advantage fund is no longer available. It just happened on July 31,” one of the sources said, adding “the bank has been talking to Paulson for months because of the cost structure.”

UBS clients can still invest with Paulson as UBS is setting up a separate share class for its customers at the Advantage fund. They can also get into the $11 billion Paulson Partners fund, which is up roughly 8.5 percent through the first 6-1/2 months of the year, one of the sources said.

It was not immediately known how many UBS clients will choose to roll their money into the new options and stay invested with Paulson however.

Bank of America clients also have the choice of rolling money from the Advantage fund into the Paulson Partners fund.

Paulson’s Advantage fund was once a crown jewel at the $20 billion firm but recent swings in returns have made some financial advisors wary of buying it for their wealthy clients.

Advantage fund assets now stand at roughly $2.8 billion, down from roughly $18 billion in 2011, due to a mix of redemptions and volatile performance.