By Matthew Goldstein

Hedge fund titan John Paulson has a shrinkage problem.

The billionaire manager’s flagship Paulson Advantage funds are quickly losing altitude after peaking with $19.1 billion in assets under management in March. As of the other day, the combined AUM of the Paulson Advantage and Advantage Plus funds had fallen to $15.7 billion, according to investor sources.

The Advantage funds account for roughly 44 percent of the $35. 2 billon in assets under management at Paulson. The two so-called event driven fundsĀ  long have been the manager’s largest.

And the July performance numbers for the Advantage funds should be ugly. A source tells us the Advantage Plus fund, which is a leveraged version of the plain vanilla flagship fund, was down 4.63 percent in July. With that decline, the Advantage Plus fund is down a little over 21.6 percent for the year. The plain vanilla Advantage fund is believed to be down around 15 percent for the year.

The rapid shrinkage of the Advantage funds is largely the result of a series of bad bets and missteps by a trader who has taken on almost God-like status in the $2 trillion hedge fund industry. A good chunk of the $3.4 billion decline in AUM is due to the $482 million loss the Advantage funds incurred when Paulson unloaded shares of Sino- Forest–a Chinese forestry company accused of overstating its timber production and results. His big bets on financial stocks like Bank of America, Citigroup and CIT Group also are causing havoc for his portfolio.

Right now investors are putting in redemption notices to pull money out of the Advantage funds at the end of September. It’s not clear yet how much money investors will seek to redeem, but that no doubt could further impact the size of the flagship funds.