Financial Times of London: Paulson $9bn Hedge-fund Falls 6% in May

By Sam Jones in London

Published: June 5 2011 22:33 | Last updated: June 5 2011 22:33

Paulson & Co, the world’s third-largest hedge fund, saw the value of its flagship fund drop close to 6 per cent in May, echoing losses across the industry.

The loss tops negative returns in the first quarter at the $37bn 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 $9bn Paulson & Co Advantage Plus fund is down 7.6 per cent. The average hedge fund lost 1.39 per cent 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 per cent.

May was also a painful month for Mr Paulson’s other big investment call: gold. The Paulson & Co Gold fund dropped 6.39 per cent in May, erasing much of its 8.5 per cent April gain. The fund is up 0.9 per cent 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 per cent for May, while the Recovery fund, which is geared to the prospects of the US economy, dropped 0.69 per cent. 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 per cent 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 $460m 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 per cent in 2010. It returned 21.5 per cent in 2009, 37.6 per cent in 2008 and 158.5 per cent in 2007.

 

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