Paulson's Advantage Plus and Advantage Funds Continue to Decline

From 2007 until 2010, John Paulson was seemingly immortal. Everything that he touched, it seemed, would turn into gold.

Paulson's magical run started in 2007 when he successfully bet against the subprime mortgage industry and made himself (and his investors) a fortune nearly overnight. Paulson's steadfast conviction in his bet against subprime mortgages made him a billionaire and one of the hedge fund industry's brightest stars.

Would Paulson end up being a one-hit wonder? Hardly. He followed up his ridiculously strong performance in 2007 with strong years in 2008, 2009 and 2010. A flood of new assets poured into his hedge fund firm, as practically every eligible investor in the world wanted a piece of the newly-minted hedge fund legend.

By the end of 2010, Paulson & Co. was reported to have over $35 billion in investor assets under management, making it one of the largest hedge fund firms in the world.

Many people wondered - when would Paulson lose his Midas touch? No investor is infallible, and even the best have their off years.

After four remarkable years that have given him a total net worth of over $15 billion, John Paulson finally appears to be losing some of the bloom off of his rose.

According to the WSJ, Paulson's Advantage Plus fund was down 31% through the first 7+ months of the year. In addition, his Advantage Fund was reportedly down 21.5% through the same time period.

To make matters worse, Hewlett-Packard Company dropped over 20% today. Paulson & Co. Inc. reported owning a large 23.5 million share stake in the company as of their most recent quarterly filing.

In addition, declines in stocks such as Bank of America and Sino Forest have helped contribute to Paulson's losses in 2011.

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One thing that is going for Paulson - a reported 36% of the cash in his firm is from the firm's employees (much of this cash belongs to Paulson himself).

It will be interesting to see how many of the investors in Paulson's firm head for the exit if he can't pull off a remarkable turnaround during the last 4 1/2 months of the year.

Source: WSJ.com - John Paulson Hits a Soft Patch

Filed under: Hedge Fund News