Veteran hedge fund manager Donald Sussman’s Paloma Partners is undertaking a major strategic overhaul, cutting the number of portfolio management teams it backs by around half as the firm refocuses on a smaller group of high-conviction trading strategies, according to a report by Bloomberg.
The report cites a letter sent to investors as outlining that the multi-strategy hedge fund plans to reduce its roster to approximately 10 portfolio manager teams, shifting its emphasis towards fixed income arbitrage and systematic strategies that require less capital, are cheaper to operate and are viewed as less susceptible to crowded trades.
The restructuring also includes a significant reduction in quantitative investment teams, with Paloma concentrating on a narrower range of strategies including short-duration G7 government bond arbitrage, convertible bond arbitrage, relative value credit and systematic futures trading.
In the investor letter, Sussman said several underperforming teams had offset gains generated elsewhere in the portfolio, prompting the firm to reassess whether some quantitative strategies remain capable of producing attractive excess returns in an increasingly crowded marketplace.
The move follows a sharp decline in Paloma’s assets under management over the past three years. The firm managed approximately $1.1bn at the end of 2025, down from around $4bn in 2023, according to regulatory filings.
Paloma returned about -3% during the first half of 2026, according to people familiar with the firm’s performance.
The restructuring highlights the growing divide within the multi-strategy hedge fund sector, where the industry’s largest firms continue to attract assets and trading talent, increasing competitive pressure on smaller platforms.
Large multi-manager firms have benefited from their ability to diversify risk across dozens of investment teams while investing heavily in technology, data and recruitment. By contrast, Paloma is opting for a more concentrated model built around strategies it believes can deliver uncorrelated returns without requiring the scale of the industry’s biggest platforms.
Founded in 1981, Paloma is one of the hedge fund industry’s longest-established firms and played an important role in backing several successful investment businesses during its history, including early support for DE Shaw as well as later investments in firms such as LMR Partners and Sona Asset Management.
The latest restructuring follows previous efforts to reposition the business. In 2024, Paloma recruited former Credit Suisse executive Ravi Singh as chief executive and hired former WorldQuant chief operating officer Mike DeAddio to modernise the firm’s operating platform. The firm also explored bringing in a large institutional strategic investor to support its next phase of growth.
As part of the latest changes, Sussman told investors that Paloma will waive management fees for at least the next two years while the revamped strategy seeks to rebuild its performance, although investor liquidity terms will remain unchanged.
The overhaul reflects a broader trend across the hedge fund industry, with established multi-strategy firms reassessing their operating models as rising costs, increased competition and the dominance of the largest platforms reshape the sector.
