New Mexico's state pension fund is sticking with embattled hedge fund manager John Paulson for now even as his main portfolios suffer their worst-ever losses.

We don't have any plans for action, Joelle Mevi, chief investment officer at the Public Employees Retirement Association of New Mexico, said on Wednesday.

New Mexico is among a large number of high profile investors that have entrusted millions to Paulson & Co and now face the tough task of deciding whether to stay put or ask for money back as a critical deadline looms at the end of October.

Prior to these last months, we've had good performance with Paulson, said Mevi, who has invested with Paulson since 2010.

On Tuesday, John Paulson, who shot to fame on a bet against subprime bets, told investors on a call that he had been wrong on the timing of a recovery and had overconfidently bet that too many stock prices would rise, according to several people who listened in.

His main Advantage Plus fund has tumbled 47 percent this year while his Advantage fund cousin is off 32 percent, investors have said.

Paulson said that he might be forced to return as much as one-quarter of the firm's roughly $30 billion, the investors who listened to the call said.

At the moment the Advantage Funds, Paulson's biggest, which have been hard-hit by their exposure to financial stocks, are believed to have about 30 percent in cash, several investors said. Paulson could use this money to meet redemptions and return money after the end of the year.

A spokesman for Paulson said he had no comment.

New Mexico, like many other large pension funds, has been advised by consulting firm Cliffwater LLC. It is unclear how Cliffwater will advise its other clients that are invested with Paulson, but Stephen Nesbitt, Cliffwater's chief executive, said on Tuesday that he planned to dial in to the Paulson call.

At the same time that New Mexico is sticking with Paulson, its investment committee will advise its board to terminate Diamondback Capital Management, a firm which had been embroiled in the U.S. government's insider trading case.

The board will vote at the end of the month and likely ask for $40 million back from the Stamford, Connecticut-based fund, which has been under pressure since FBI agents raided it nearly one year ago.

Pension fund boards traditionally agree with their investment committee's recommendations.

New Mexico was among a number of high profile clients that stuck with Diamondback as others pulled out over $1 billion in assets. But recently the fund, and Cliffwater, had a change of heart as performance sagged and concerns about the insider trading probe lingered.

Diamondback has not been charged with any wrong doing and it recently settled an insider trading case by paying back roughly $1 million.

A spokesman for Diamondback had no immediate comment.

(Editing by Steve Orlofsky)

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