John Paulson's hedge fund, which a little less than a decade ago was the most desired place for buyside employment on Wall Street, is imploding. Just days after the Post reported that the firm fired its heads of equity and credit trading amid freefalling P&L as the one-hit wonder has so far failed to repeat the success of his blockbuster subprime megatrade, amid shrinking AUM which has tumbled from $38bn in 2011 to under $10bn now (of which 80% is Paulson' own money), today Paulson Capital took a decisive step to becoming a family office - or perhaps just shutting down - when, as Bloomberg reported the fund's gold and special situations hedge funds are returning client capital "as the firm narrows its focus." Additionally, one of the firm’s Credit Opportunities funds is also forcing clients to redeem, according to Bloomberg sources, although a second credit fund - arguably the better performing one - will remain open, and investors have the option of moving their money into that offering. Investors can also switch into the merger-focused Pure Spread fund and the European Event Equities fund. They probably won't. Amid the termination of its core traders and the return of capital, Paulson hopes to return to his roots of merger arb and distressed investing, as Bloomberg previously reported. So is the inevitable next step downsizing to a family office and returning all outside capital? For now, he has no plans to turn the firm into a family office, and is re-focusing on distressed debt and merger arbitrage, people close to Paulson say. A representative for the firm declined to comment about changes to the funds. “We are rightsizing the firm to focus on our core expertise in areas that are growing,” the fund said in a statement on Friday, a euphemism for scrambling to do anything in our power to avoid a forced liquidation of all our positions. For now Paulson's equity funds are said to remain operational, which is why we will save a table of Paulson's top 10 positions until the liquidation actually begins.