Another Traumatic Month for Paulson

[scandal 951]

Poor John Paulson. It must be tough being a billionaire running a hedge fund with huge losses and needing to face the investors asking for redemptions. I almost feel sorry for him. Almost.

Maybe he shouldn't place so many directional bets and do a little more hedging and stat-arb. But what do I know. He's the billionaire, not me.

http://dealbook.nytimes.com/2011/10/10/another-traumatic-month-for-paulson/

Another Traumatic Month for Paulson

Tired of incessant leaks to the media about its poor performance, Paulson & Co., the hedge fund started by billionaire John A. Paulson, decided a few weeks ago to amend its reporting policies to make it harder to obtain performance data.

But the changes failed to obscure this painful fact: one of his largest funds is down 47 percent through September, a loss that would require returns of almost 100 percent to surmount, according to investors in the fund. The non-leveraged version of the same fund is down about 32 percent, according to the investors.

Other funds that were doing fine earlier this year are now also taking a nosedive, including Mr. Paulson’s gold fund ( up 1 percent for the year after falling 16 percent last month), which placed bets on various assets linked to the precious metal, as well as his Recovery fund (down 31 percent for the year), which placed a bet on the recovery of the U.S. economy. Both funds were hit with double digits losses in September after a gold price slide and further turmoil in the stock market.

Such reporting changes are common in the world of hedge funds. For many of the indexes and databases, information is collected on a voluntarily basis, and often funds stop reporting when their returns lag. In Mr. Paulson’s case, investors say that instead of giving updates on each fund’s performance to all investors, the changes now mean, the data now show only those funds in which an investor had money.

Redemptions through September were low, somewhere in the neighborhood of 2 to 3 percent of overall assets, according to an investor, as fund devotees stick with Mr. Paulson through this rough patch. And while there is another window to make requests approaching (Oct. 31) for his Advantage funds, mass withdrawals are not a foregone conclusion, according to investors. On Tuesday, Paulson & Co. will have a conference call with investors.

Mr. Paulson has aggressively raised assets ever since shorting the subprime mortgage market minted him and his fund billions, and many of his new investors are high net worth clients at major banks like Morgan Stanley, who are notoriously quick to flee. But his more enduring investors, those who made money alongside him in 2007, may be more reluctant to leave, some say. One investor noted that since the assets Paulson & Co. owns are so depressed, it could make sense to hang until there is a snap back in the markets.

It’s been a bad year for Mr. Paulson’s firm. While choppy markets earlier this year kept a number of big hedge funds flat performance-wise, Paulson & Co. began suffering big losses early. The firm lost nearly $500 million on a failed investment in a Chinese timber concern when a researcher betting against the stock accused the company of fraud. Later, as the markets fell on European debt concerns, Paulson & Co.’s portfolio tumbled along with it.