Hedge guru’s touch no longer golden
NEWYORK— Billionaire John Paulson, the hedge- fund manager seeking to reverse two years of losses in some of his strategies, lost 27 per cent in his Gold Fund last month after the precious metal and related securities plummeted, according to two people familiar with the matter.
The loss brings the strategy’s decline to about 47 per cent this year, said the people, who asked not to be identified because the information isn’t public. The fund is made up primarily of Paulson’s own money, one of the people said. The strategy has about $500 million US, down from about $700 million US at the end of March.
Gold fell 7.8 per cent last month, including the biggest two-day decline since January 1980, as the U.S. economic recovery gained momentum, the dollar rose and Federal Reserve policy makers signalled they may scale back asset purchases, curbing demand for the metal as a haven. Bullion producers slumped 20 per cent, including reinvested dividends.
Armel Leslie, a spokesman at Walek & Associates for New York-based Paulson & Co., declined to comment on the returns. Paulson’s firm oversees about $18 billion US in assets.
The Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and has a portion invested in gold miners, fell 0.7 per cent in April and rose 3.9 per cent this year, one of the people said. The Advantage Fund, which employs a similar approach without adding leverage, declined 0.9 per cent last month and rose 2.6 per cent in 2013, according to the person. The strategy had $4.5 billion US in assets.
All of the gold-share classes slumped last month except for Paulson’s Recovery Fund, which makes bets on investments designed to benefit from a long-term economic advance, the person said. Investors can choose between gold- and dollar- denominated ver- sions of most of the firm’s funds. About 97 per cent of capital in the dollar-share classes gained this year, the firm said in a letter to clients yesterday, according to the person. The firm did not disclose in the letter how much money is in the dollar- versus gold-share classes.
The gold-share classes, which Paulson started in April 2009, have gained an average 48 percent more than the dollar- share classes cumulatively since inception, the person said. The gold-share classes are comprised primarily of Paulson & Co. employees’ money.
Gold stocks’ current valuations are at historic lows and have considerable opportunities to rise, the firm reiterated in the letter, the person said. Paulson has said gold is the best protection against currency debasement and inflation, a sentiment echoed earlier this month by Paul Singer’s Elliott Management Corp.
In contrast, Coutts & Co. scaled back gold holdings as prices fell through $1,600 US an ounce, saying that a return to the peak isn’t likely.
The private-banking division of Royal Bank of Scotland Plc holds about one per cent to two per cent in its portfolios, compared with six per cent to seven per cent at the end of the third quarter, said Gary Dugan, Coutts chief investment officer for Asia and the Middle East.
Dollar shares of the Recovery Fund, Paulson’s best- performing strategy this year, rose 6.6 per cent in April and 22 per cent in 2013, the person said.
The fund gained because of its stakes in insurance and asset-management companies, the firm wrote in the letter, according to the person. The strategy had $1.7 billion US in assets at the end of March.
Paulson’s Credit Opportunities Fund, the firm’s largest strategy, with about $5.9 billion US in assets, rose 1.3 per cent in April and 12 per cent this year, the person said.
The fund rose because of investments in bank debt and defaulted, mortgagebacked and convertible securities, according to the person.
Paulson Partners Enhanced, a merger-arbitrage fund, climbed three per cent last month and 14 per cent this year, the person said. The firm’s merger strategy had $5.3 billion US.
Paulson, who made $15 billion US for his investors in 2007 by betting against subprime mortgages before the housing collapse, is seeking to rebound from wrong-way bets on a U.S. economic pickup in 2011 and a worsening European debt crisis, bullion and gold stocks in 2012.