Paloma cuts teams, refocuses on fixed-income arbitrage

Paloma Partners is cutting the number of portfolio management teams it backs by about half to roughly 10 and will concentrate on fixed-income arbitrage and systematic futures trading. The firm plans to reduce its quantitative investment teams and focus on short-duration G7 government bond arbitrage, convertible bond arbitrage and relative-value credit.

In a letter to investors, founder Donald Sussman wrote that “several underperforming teams had offset gains generated elsewhere in the portfolio,” prompting a reassessment of whether some quantitative approaches can still produce attractive excess returns in a crowded market.

Regulatory filings show assets under management fell to about $1.1 billion at the end of 2025 from roughly $4 billion in 2023. People familiar with the firm’s results reported Paloma returned about -3% in the first half of 2026. Sussman told investors management fees will be waived for at least two years while the firm seeks to rebuild performance; investor liquidity terms will remain unchanged.

The firm plans to back roughly 10 portfolio manager teams running high-conviction strategies and to prioritise approaches that require less capital and cost less to operate. Paloma expects the narrower strategy set to be easier to scale without the large technology and recruitment budgets of the biggest multi-manager platforms.

Founded in 1981, Paloma provided early backing to firms such as D.E. Shaw and later investments including LMR Partners and Sona Asset Management. In 2024 the firm hired former Credit Suisse executive Ravi Singh as chief executive and brought in Mike DeAddio, previously chief operating officer at WorldQuant, to update its operating platform. The firm has explored bringing in a large institutional strategic investor to support growth.

Several multi-manager firms are reassessing operating models as costs rise and assets concentrate at larger platforms. Paloma’s reorganisation narrows its business from a broader multi-manager approach to a smaller set of arbitrage and systematic trading strategies.