Paulson fund absorbs heavy losses in early March

Fri Mar 18, 2011 3:49pm EDT

* Paulson's Advantage Fund down 6.14 pct in March

* Paulson's moves, returns always closely watched

By Svea Herbst-Bayliss

BOSTON, March 18 (Reuters) - Billionaire stock picker John Paulson's flagship fund fell more than 6 percent in the first two weeks of March, hit hard by falling financial markets after the crises in Japan.

The Advantage Plus fund, which has roughly $4 billion in assets, was off 6.14 percent through March 15 as some of his big bets on the rising fortunes of U.S. bank stocks and the housing market soured. Since the start of the year, the fund has lost 5.29 percent, according to an investor who is not allowed to speak about performance publicly.

A spokesman for Paulson declined to comment.

A broad selloff struck world markets this week amid Japan's unfolding nuclear calamity. Japan's stock market lost 20 percent in the two days of trading after the devastating earthquake and tsunami hit on March 11.

The broad Standard & Poor's 500 index .SPX was off 3.4 percent for the month through March 15.

The Paulson International Fund, offered on Societe Generale's Lyxor platform, was down 2.25 percent through March 15 but is up a smidgen, 0.21 percent, since the start of the year.

Paulson was not alone in posting poor numbers during the first weeks of March and the numbers on the Lyxor platform did not capture some very recent gains in the market, investors pointed out.

Recently listed by Forbes as the world's 39th richest man with a net worth of $16 billion, Paulson has become one of the hedge fund industry's most closely watched traders in the last few years.

With $36 billion in assets, his New York-based Paulson & Co ranks as one of the world's biggest hedge funds thanks largely to successful bets on subprime mortgages and gold.

Last year, Paulson said that he expected growth to rebound and housing to take off and therefore ramped up on bank and housing stocks which helped his fund deliver another strong year in 2010. Early this month, the bets were not as lucky.

Some of the likely losers in Paulson's portfolio include shares of Citigroup (C.N), his second biggest holding at the end of December, which is off 4.2 percent this month. Anglogold Ashanti Ltd (ANGJ.J) (AU.N) his third largest holding, is down 7.6 percent in March and Anadarko Petroleum Corp (APC.N) is down 4.7 percent. Bank of America (BAC.N) and the SPDR Gold Trust (GLD.P) are the other holdings in his top five and they were performing better.

Paulson, whose fund has become a favorite with pension funds in Indiana and New York and with wealthy investors here and abroad, earned his reputation as a star trader after scoring big gains in 2007 from a massive bet on the collapse of the U.S. housing market.

He followed that last year with his savvy trade on gold and bets the metal would soar as investors looked for other asset classes to park cash after the Federal Reserve's decision to keep interest rates at record level lows.

Now some investors are wondering what his next big bet will be and how it will fare.

While this month's losses grab headlines, Paulson was in a similar position last year when many of his portfolios were in the red until late into the summer when the losses vanished and he ended the year up, again. (Reporting by Svea Herbst-Bayliss; Editing by Phil Berlowitz)

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