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New York Times – While his counterparts at other big hedge funds are trying to figure out whether they can stay in business, the fund manager John Paulson continues to rack up enormous profits. DealBook has obtained Mr. Paulson’s confidential year-end letter to his undoubtedly gleeful investors.
The 20-page report details how Mr. Paulson’s firm, Paulson & Company, which manages nearly $29 billion in assets, avoided the huge losses plaguing other funds, and it gives his firm’s outlook for this year.
Paulson Advantage Plus, the firm’s largest fund with roughly $7 billion in assets, returned a whopping 37.6 percent net of fees for 2008. Another version of the fund, which does not use borrowed money to amplify its return, recorded gains of about 24 percent, according to the letter.
New York (HedgeCo.Net) – Billionaire and hedge fund manager extraordinaire John Paulson has reportedly pocketed $139 million by betting against the Royal Bank of Scotland, further fueling cynicism that shorting aids in driving down share prices.
Paulson is no stranger at predicting trends and shorting companies that he feels fit. Late last year, his New York-based Paulson & Co. disclosed short positions in the British mortgage lender HBOS, Barclays and Lloyds TSB.
Investors turn to Paulson because he seems to have a knack for placing bets that he feels will turn out in his favor. Paulson infamously bet against the U.S. housing market in 2007, which garnered himself a $3 billion paycheck while returns on his hedge funds continued to rise. In 2008, when most hedge funds lost an average of 15 percent on the year, Paulson’s funds kept steady, with his Advantage Plus fund up 20 percent.
While some argue that the practice of shorting is responsible for driving down share prices, many feel that is an unfair assumption. The ban on short selling that was enacted last September in the UK was finally lifted earlier this month, although short positions are still required to be disclosed. The Financial Services authority has said they would reinstate the ban if it proved to be needed.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Guardian Unlimited – Billionaire hedge fund manager John Paulson has made a £100m profit by betting that the Royal Bank of Scotland’s share price would fall dramatically, according to calculations by the Guardian, adding fuel to the debate about the impact of short-selling on bank stocks.
New York-based Paulson, who made more than $3bn by betting against the US housing market, now appears to be profiting from positions placed on the assumption that bank shares would tumble in the aftermath of the market chaos caused by the demise of the sub-prime mortgage industry.
His hedge fund, Paulson & Co, was one of the few to trade through the ban imposed on short-selling by the Financial Services Authority in September to protect the rescue takeover of HBOS by Lloyds TSB.
West Palm Beach (HedgeCo.net) – One of Hong Kong’s largest independent financial institutions, Sun Hung Kai Financial, is teaming up with hedge fund Paulson & Co, launching a distressed asset investment fund, according to a Reuters report.
John Paulson will act as the new $100 million offshore fund’s investment manager. The fund will only be open to professional investors and will feed into Paulson’s existing “recovery fund”, which invests in distressed financial assets, according to the report.
With approximately $29 billion in assets under management Paulson hedge fund has offices in New York, London and Hong Kong. Sun Hung Kai has over HK$50 billion ($6.45 billion) in assets under management, Reuters said, together, the funds plan to invest globally, but are focused mainly on the United States.
Rizal Wijono, Managing Director at SHK Fund Management Limited, the Sun Hung Kai’s asset management business said, “There is a lot of turmoil in the U.S., which is Paulson’s home market. They’ve been looking at a approximately 100 financial institutions who they think are going to be the survivors and the failures,” he said, “To date, they’re looking into Asia, but they haven’t identified potential positions yet. If you’re looking for maximum appreciation, the obvious place is the developed world.”
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Bloomberg – Paolo Pellegrini, the hedge-fund manager who helped Paulson & Co. make more than $3 billion in 2007 on bets the U.S. housing bubble would burst, resigned to start his own fund, a person familiar with the matter said.
Pellegrini, 52, a manager of Paulson’s credit opportunities funds, left on Dec. 31 in an “amicable” departure, said Armel Leslie, a spokesman for New York-based Paulson & Co. John Paulson, founder of the firm, which oversees $36 billion, couldn’t be reached for comment.
Paulson and Pellegrini became convinced in 2006 that investors were overvaluing mortgage-backed securities whose risk for losses they or credit rating firms had misjudged, according to client letters obtained by Bloomberg News. The firm’s credit opportunities funds soared about sixfold in 2007 as mortgage defaults rose and the value of the securities declined.
Interactive Investor – Paolo Pellegrini, who played a crucial role in helping to implement bets against subprime mortgages that netted Paulson & Co about $15 billion in 2007, resigned from the hedge-fund firm on Dec. 31, the Wall Street Journal said.
Pellegrini, who along with John Paulson was the co-portfolio manager of the two Paulson Credit Opportunities funds, is expected to start his own hedge fund, the paper said.
The departure was amicable, the paper said, citing people close to the matter.
New York (HedgeCo.Net) – John Paulson, head of hedge fund firm Paulson & Co., recently spoke his mind on the wave of redemption freezes that many managers have chosen to impose.
“We think it’s a mistake for our managers to use gates and other tools to limit investor access to their funds,” Paulson stated in a recent outlook to investors that was obtained by Bloomberg News. “While we recognize the difficulties of the current environment, we think it is a manager’s responsibility to raise liquidity to meet the redemption needs of their investors.”
Paulson’s hedge funds did not see the effects of the troubled economy, where most funds posted their worst year to date. In fact, when the subprime crisis wreaked havoc on the financial markets, Paulson was catapaulted into billionaire status, by successfully predicted the housing mess. His hedge funds, in turn, were up about $15 billion in 2007.
This year also saw admirable gains, with his Advantage Plus Fund climbing 3.19 percent in November, and currently up 38 percent on the year. His slightly smaller Advantage Fund was also up 21 percent through the end of November.
Most other funds haven’t experienced that level of success this year. According to the Credit Suisse/Tremont Hedge Fund Index, funds are down over 19 percent on the year through the end of November. Dozens of large, reputable funds have suspended withdrawals including Citadel, RAB, Harbinger and Cerberus, just to name a few.
Paulson also disagrees with managers that “have the cash and one of the stated reasons for restricting withdrawals is so the manager can continue to invest in new opportunities.”
Paulson’s firm is teaming up fellow New York firms Dune Capital Management and J.C. Flowers & Co. to purchase failed bank IndyMac. A deal is expected to be finalized in the near future.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – Several hedge fund firms led by J.C. Flowers & Co., are closing in on a deal to purchase the assets of IndyMac, the failed mortgage lender, as of Sunday.
The group of firms, which also include Paulson & Co. and Dune Capital Management, would buy the bank’s 33 branches, along with its $176 billion loan-servicing portfolio and its reverse-mortgage unit.
The IndyMac Bank unit was seized by regulators in July after clients moved to withdrawal $1.3 billion in cash in little over a week. The result was one of the worst U.S. bank failures in history, from a firm who managed $32 billion in assets.
Paulson & Co. is a New York-based hedge fund run by famed manager John Paulson. In the midst of one of the worst years for hedge funds to date, Paulson’s funds have managed to reap consistent returns.
Dune Capital Management is a New York-based private equity firm, founded in 2004 by ex-Goldman employees Steven Mnuchin and Daniel Niedich.
J.C. Flowers & Co., another New York-based firm, was founded in 2001 by billionaire J. Christopher Flowers, also formerly of Goldman. In 2007, the company was close to purchasing loan servicer Sallie Mae for $25 billion.
The Federal Deposit Insurance Corp is being advised on the sale by Barclays Capital and Deutsche Bank. A deal is expected to be finalized by the end of this year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
