John Paulson Set To Make A Billion Dollars Plus in 2008

The people who figured that John Paulson was in for a letdown after posting such astonishing returns in 2007 are in for a letdown of their own.

Paulson and Co. Inc. continues to outperform the overall hedge fund industry (and markets in general) by an extremely wide margin.

Because of these outsized returns, Paulson's hedge funds continue to receive an avalanche of new investor capital. At last check, Paulson and Co. Inc. had approximately $35 billion dollars under management, making it one of the largest hedge fund companies in the world. While other hedge funds are shrinking or going out of business, Paulson's funds continue to blossom and outperform the markets.

According to a recent article on Bloomberg.com, four of the top 20 performing hedge funds in 2008 belong to Paulson's company.

The "Advantage" funds have done particularly well - the $10 billion dollar Advantage Plus Ltd fund was up 33% through November, while the smaller $5 billion dollar "Advantage Ltd" fund was up 21% YTD.

This comes a year after Paulson burst onto the scene, scoring triple-digit returns for his Paulson Credit Opportunities and Paulson Credit Opportunities II funds. Paulson correctly surmised that the mortgage market was about to implode, and profited handsomely for both himself and his investors when the housing market started to collapse. Even with investors and other hedge fund managers telling him that he was crazy for betting against the housing market, Paulson stuck to his guns and made a fortune for Paulson and Co. shareholders (including himself) in 2007.

John Paulson became an overnight sensation, with many media outlets latching on to his every word.

The adulation and success has carried over into 2008, and now John Paulson is one of the most revered hedge fund managers in the world. While the hedge fund industry continues to contract, Paulson and Co. just keeps growing.

Can John Paulson keep his Midas touch in 2009?

Filed under: Hedge Fund News | Trader Profiles

COMMENTS

Comment by kingrichards on September 15, 2009 @ 12:56 pm

It has been awhile guys....Thought it was time I got my happy ass back on here...

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Comment by Josh Friedlander on December 07, 2008 @ 7:31 pm

Dave: Generally true, but his team and infrastructure was many many years in the making, so it was definitely a case of "overnight success takes 10 years."

I'm not certain I remember anyone specifically saying that short subprime was a bad bet, so much as they mistimed or didn't execute against the housing bubble successfully. Then at the end of 2007 Paulson telegraphed his trades to the market in a presentation he repeated for those who would listen explaining what has become manifestly clear: that it wasn't a housing bubble, but a credit bubble and would go on to affect corporate borrowing, auto, credit cards and stocks in general. What remains amazing is how many hedge funds were generally bearish going into 2008 but managed to position their portfolios net long in equities.

He'll continue to beat others in part because he's a true hedge fund manager. He looks for arbitrage opportunities while others look for deviations from some mean and presume a return to that mean. While a gaggle of hedge funds are now pushing distressed strategies, many will buy blown out high yield debt just in time for it to default. Paulson, meanwhile, seeks out the most undervalued of the AAA mortgage tranches, an area where good research will make a massive difference.

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