Paulson’s luster lust

New York Post

Double down!

Hedge fund biggie John Paulson, the world’s foremost gold bug, added to his precious metal hoard during the second quarter.

Gold now accounts for 44 percent of his entire stock portfolio. The biggest increase was the additional 4.5 million shares of SPDR Gold Trust, a gold exchange-traded fund. The firm reported a $3 billion decline in the value of its stock portfolio, to $12 billion for June 30, down from $15 billion on March 31, in the quarterly statements with the Securities and Exchange Commission that were filed yesterday. SPDR Gold now accounts for $3.39 billion of Paulson’s entire portfolio, or 28 percent. The exchange-traded fund lost about 4 percent during the quarter.

Paulson Faces Tough Going Splitting Hartford, Bernstein Says

Barron’s

Hedge-fund manager John Paulson’s newest pet project is splitting Hartford Financial (HIG) into separate property-and-casualty and life insurance companies. But the idea could face tough going because of cash-flow issues in the life-insurance business, according to Bernstein Research’s Suneet Kamath.

Of particular interest is how debtholders are likely to react — something that’s gotten less attention than what Paulson has argued is the huge store of shareholder value that’s unlockable by a split, Kamath says:

Paulson Calling For A Greek Default

According to Paulson & Co., a hard default by Greece could spell economic disaster of unprecedented proportion along with the breakup of the Euro.  In his 2011 recap letter to clients, he estimates $117 billion will be needed to recapitalize banks and satisfy other monetary needs.

Paulson & Co.:

“We believe a Greek payment default could be a greater shock to the system than Lehman’s failure, immediately causing global economies to contract and markets to decline,” the hedge fund said in the letter, a copy of which was obtained by Bloomberg News.

John Paulson vs Hartford Financial

FT Alphaville

You’ll have to imagine how it sounded. But here’s an interesting demonstration of John Paulson at work… stepping onto Hartford Financial’s earnings conference call to lambast the insurer’s performance. Shares in Hartford dropped 39 per cent last year. Paulson’s the biggest holder.

Paulson was decidedly not happy with a presentation from Hartford Financial on Wednesday, which he said failed to adequately examine the benefits of spinning off its Life and Property & Casualty units. So he tore into chairman/president/chief executive Liam McGee — from the conference call transcript:

Brevan Howard Made Money In 2011 Betting On Market Stupidity, Sees "Substantial Dislocation" In 2012

Zero Hedge

While Paulson’s star was finally setting in 2011, that of mega macro fund Brevan Howard was rising, and has been rising for years by never posting a negative return since 2003. The $34.2 billion fund, now about double the size of John Paulson’s, returned 12.12% in a year marked by abysmal hedge fund performance. But how did it make money?

Soros Sees Gold on Brink of Bear Market

Bloomberg

Gold is poised to complete its 11th consecutive annual gain, the longest winning streak in at least nine decades, on the brink of a bear market.

George Soros, the billionaire who two years ago called it the “ultimate asset bubble,” cut 99 percent of his holdings in the first quarter, Securities and Exchange Commission data show. Hedge fund managers John Paulson, Paul Touradji and Eric Mindich also sold bullion this year. While speculators in New York futures are the least bullish (.MMGCNET) in 31 months, the median estimate in a Bloomberg survey of 44 traders and analysts is for prices to rally as much as 40 percent to $2,140 an ounce in 2012.

Volatility Minces Returns

Barron’s

Why John Paulson—and many other hedge fund managers—did so poorly in 2011.

Where have all the stockpickers gone? Even John Paulson has apologized.

It’s no secret that 2011 was a tough year. But investors who sought refuge in hedge funds—especially those thought to excel in choppy markets—were sorely disappointed. Not to mention none the richer. As of Nov. 30, the 2,000 hedge funds tracked by Hedge Fund Research are down, on average, 4.5%, trailing the Standard & Poor’s 500 by almost four points. "This is only the third year since 1990 that the hedge-fund index has ended on a decline," says HFR president Ken Heinz.

Europe needs a firewall to stabilise markets

Bloomberg - The writer is president of Paulson & Co, the investment management firm

The European sovereign credit markets are in a danger zone. Italy and Spain need to borrow a combined €590bn in 2012, their yields remain above sustainable levels, and the European Central Bank’s efforts at buying debt in the secondary markets have so far been ineffective in holding yields down. Drawing on our experience restructuring companies along with lessons learned in the US following the bankruptcy of Lehman Brothers, we suggest the ECB consider a sovereign debt guarantee programme as a solution to the European sovereign debt crisis. Such a scheme would be similar to the successful Temporary Liquidity Guarantee Program adopted by the US’s Federal Deposit Insurance Corp to stem the financial crisis after the failure of Lehman by enabling financial institutions to refinance their maturing debt and avoid a default.

Paulson’s Bright Spot May Fade as Gold Plunges

Bloomberg

John Paulson, the hedge-fund manager enduring the worst year in his career, may be facing a final blow from this month’s selloff in gold, an investment that mitigated losses at his $28 billion firm earlier in 2011. The SPDR Gold Trust (GLD) exchange-traded fund, of which Paulson was the largest shareholder as of Sept. 30, fell 10 percent from the end of last month, and all eight of his gold stocks slumped with a 9.6 percent decline for bullion. The declines would translate into a $672.1 million paper loss on those securities for Paulson & Co., assuming his holdings haven’t changed since the end of the third quarter, when the firm reported its equity stakes in a regulatory filing.

Until this month, gold had been the bright spot for Paulson & Co. clients, who can choose to invest in gold-denominated shares of the hedge funds. Gains in bullion had alleviated losses of 46 percent, in the dollar share class, for one of the firm’s biggest funds this year through November. Paulson also offers a dedicated Gold Fund, its best performer this year. “With the dramatic moves of gold and the recent decline from its peak, I think some investors will be deciding whether they want to continue to invest in that share class,” said Don Steinbrugge, managing partner of Agecroft Partners LLC, a Richmond, Virginia-based firm that advises hedge funds and investors.

Paulson Fund Loses 46% in 2011 Through November

Bloomberg

John Paulson, the billionaire money manager having his worst year, has lost 46 percent in 2011 through November in one of his largest hedge funds, according to an investor update obtained by Bloomberg News. Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, declined 3.6 percent last month. The fund’s gold share class dropped 2.7 percent in November and 29 percent this year.

Paulson Apologizes for His Hedge Funds’ Performance

Wall Street Journal

Hedge-fund manager John Paulson apologized to his investors, saying performance at his funds this year is "the worst in the firm’s 17-year history." John Paulson, president and co-fund manager of Paulson & Co. Inc.

In his third-quarter letter dated Oct. 28 to investors, Mr. Paulson, who won fame for reaping billions of dollars by betting against the U.S. housing market, said "we are disappointed and apologize." Two of Paulson & Co.’s largest funds—Advantage Fund and Advantage Plus Fund—posted declines of 29% and 44% this year through October, according to a person familiar with the funds. Mr. Paulson said performance of funds were affected by the European sovereign-debt crisis, slowing economic growth and disagreement over the debt ceiling in the U.S.

"As the year progressed our assumptions proved overly optimistic and net equity exposure too great," he said in the letter, which was seen by a person close to the funds. At this rate, Mr. Paulson and his staff aren’t likely to earn incentive fees or a cut of profits. "We have learned from the 2011 experience," Mr. Paulson said, adding that the firm is "committed to returning investors to high-water marks." In the letter, Mr. Paulson said he has added Harvard economics professor Martin Feldstein to the firm’s advisory board, joining former Federal Reserve Chairman Alan Greenspan, New York University’s Stern School of Business finance professor Edward Altman and economic forecaster Christopher Thornberg.

Hedge Funds Face Investor Pruning

Wall Street Journal

After a turbulent 10 months, hedge funds are bracing to hear whether jittery investors will want their money back.

As the year comes to a close, some investors say they are reviewing how their managers have performed through the recent volatility and are making decisions about whether to cash out of underperforming funds. Investors who want out before the end of the year in most cases need to give 45 or 60 days’ notice of their redemptions, setting up a critical period for managers who have suffered significant losses. The hedge-fund industry sees the next two months as the most critical redemption period since the dark days of the financial crisis. Some underperforming funds, both large and small, expect to hear from investors soon. Those funds’ managers "will be punished, and rightfully so," said Vidak Radonjic of the Beryl Consulting Group LLC, which advises investors on hedge funds. Mr. Radonjic is advising clients to put in some redemption requests in the fourth quarter. These are "scary times for managers who were not positioned well," he added.

An Oct. 12 survey of 150 hedge-fund investors by Barclays Capital showed that 35% of those sampled either had redeemed recently or planned to soon redeem from managers who had performed relatively poorly. Another 20% said they were still on the fence. It is unclear which hedge funds will be affected most by redemption requests, but the market turbulence has hit big-name funds ranging from Paulson & Co. and Pershing Square Capital Management to Highbridge Capital Management.

Paulson & Co warns of asset redemptions

Financial Times

Paulson & Co, the giant US hedge fund run by billionaire investor John Paulson, has warned that in a “worst case” scenario, it could suffer redemptions equivalent to between a fifth and a quarter of its assets by the end of the year. In a third-quarter call with investors held on Tuesday, Mr Paulson sought to play down concerns about the future of his $30bn hedge fund amid steep losses in recent months and growing fears over the health of the US economy. According to several people on the call, Mr Paulson – best known for his spectacular bets against the US housing market in 2007 – spoke strongly of his “100 per cent” commitment to continue to run his funds, none of which will be wound down.

Leverage in the firm’s Advantage Plus fund, a higher-risk version of its flagship Advantage fund is to be reduced from 1.5 to 1.15 times, however. Both funds have also had their net exposure to US markets halved from its January position. The Advantage Plus fund has lost 47 per cent of its value so far this year, thanks primarily to Mr Paulson’s bullish outlook on the prospects of the US economy. The fund dropped 15 per cent in August and 19.3 per cent in September. Mr Paulson said he would not charge fees on further investments by existing investors across his range of funds until they had regained their losses.

The firm’s investor call comes ahead of the crucial redemption date for Advantage funds at the end of this month, after which firm-wide redemptions for the full year will be known. Paulson & Co said it would not have any problem meeting outflows outlined in the worst-case scenario, which would equate to around $6bn based on current assets under management. Not all investors are currently eligible to redeem, however. The firm’s redemption profile was staggered to reduce the risk of Paulson & Co having to sell assets rapidly.

Mr Paulson has been the highest profile hedge fund casualty of 2011.

His Recovery Fund is down 31 per cent so far this year, and his Credit Opportunities Fund is down 18 per cent. Both have sustained the majority of their losses in the third quarter. Only Mr Paulson’s his $1bn Gold fund has made money this year. It is up 1.3 per cent. The losses were a “blip” on the firm’s long term track record, Mr Paulson said, but acknowledged that they were “disappointing”. Since 2009, Mr Paulson has piled into distressed US equity and bond positions in trades designed to pay off from continued US growth and expected, in many cases, to deliver triple-digit returns. While the positions paid off handsomely in 2009 and 2010, they have collapsed this year as confidence has ebbed and policymakers have struggled to solve issues such as the eurozone debt crisis.

Paulson Funds Struggle as Big Bets Backfire; Gold Works

Wall Street Journal

Prominent hedge-fund investor John Paulson, who runs the $38 billion Paulson & Co., has suffered sizable losses in recent weeks amid fresh worries about the global economy, pushing a key fund deep into the red for the year so far. Mr. Paulson’s $9 billion Advantage Plus fund lost more than 13% in the early part of this month, through June 10, leaving it down 19.65% for the year, according to two investors briefed on the performance. The Enhanced Partners fund, which had been a big winner this year, lost nearly 7% in the first 10 days of June, and now is up less than 4% in 2011, according to the investors. Those returns contrast with a year-to-date gain of about 1% for the average hedge fund, though Tuesday, according to data tracker HFR Inc.

One problem for Mr. Paulson: The recent collapse in shares of China forestry company Sino-Forest Corp. The timber company has tumbled 80% since late May, amid allegations by a short seller of questionable accounting, which the company has denied. That collapse has resulted in a paper loss of more than $500 million for Mr. Paulson’s firm, based on holding figures as of April 29 from FactSet Research. Paulson & Co. owned nearly 35 million shares of Sino-Forest, according to FactSet. The hedge-fund firm’s holdings of Sino-Forest represent more than 14% of the timber company’s shares outstanding and almost 1.5% of the hedge fund’s stock holdings, according to FactSet. A person familiar with the matter said the position hasn’t changed much since that filing.

Paulson $9 Billion Hedge Fund Falls 6 Percent in May

Financial Times

Paulson & Co, the world’s third-largest hedge fund, saw the value of its flagship fund drop close to 6 percent in May, echoing losses across the industry. The loss tops negative returns in the first quarter at the $37 billion New York-based money manager, famed for the spectacular returns gained by shorting the US mortgage market in 2007, and will again raise questions over its portfolio’s volatility.

John Paulson, Paulson & Co’s founder, has maintained his bullish view on the US economy and equity markets, even though many of his peers have recently begun to lower their market exposure levels. May’s loss means that in the year to date, the $9 billion Paulson & Co Advantage Plus fund is down 7.6 percent. The average hedge fund lost 1.39 percent over the month according to preliminary data from Hedge Fund Research, with “event-driven” strategies such as that operated by Paulson & Co’s main fund down on average 0.62 percent. May was also a painful month for Mr Paulson’s other big investment call: gold .

The Paulson & Co Gold fund dropped 6.39 percent in May, erasing much of its 8.5 percent April gain. The fund is up 0.9 percent in the year. Paulson & Co is the world’s largest non-sovereign gold investor. Performance was better for the firm’s other funds. Its Credit fund was down 0.05 percent for May, while the Recovery fund, which is geared to the prospects of the US economy, dropped 0.69 percent. Paulson & Co declined to comment. In the firm’s most recent correspondence with investors Mr Paulson said difficulties for US banks had been a particular drag on his portfolios but that he remained optimistic.

The US stock market could rally as much as 40 percent from its first quarter level this year, he said.

Other hedge fund managers have become less bold. George Soros has cut his holdings of gold, leaving Mr Paulson as one of only a few top-tier managers with a significant position in the metal. June is also shaping up to be a difficult month. Paulson & Co is the largest investor in Sino Forest, the Canadian-listed forestry group that has been accused by short seller Carson Block of fraud, charges that the company disputes. The collapse in Sino Forest’s share price on Friday handed a $460 million paper loss to Paulson & Co. Mr Paulson is no stranger to volatile returns. Last year saw several months of significant performance swings but the firm ended 2010 with double-digit returns for all its funds. The Advantage Plus fund returned 17 percent in 2010. It returned 21.5 percent in 2009, 37.6 percent in 2008 and 158.5 percent in 2007.