Paulson losses grow as Europe bet hurts

NEW YORK Tue Jul 10, 2012 4:31pm EDT

President and Portfolio Manager of Paulson & Co. John Paulson speaks during the Sohn Investment Conference in New York, May 16, 2012. REUTERS/Eduardo Munoz

President and Portfolio Manager of Paulson & Co. John Paulson speaks during the Sohn Investment Conference in New York, May 16, 2012.

Credit: Reuters/Eduardo Munoz

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NEW YORK (Reuters) - An already very bad year is looking even worse for hedge fund industry titan John Paulson after a bet against Europe lost many of his funds more money last month.

For the year, one of Paulson's biggest portfolios, the Advantage Plus fund, is off 18 percent. His gold fund is down 23 percent and June's declines took a bite out of the gains in some of his other funds, according to two investors familiar with the numbers but unable to discuss them publicly.

The numbers put Paulson among the $2 trillion hedge fund industry's worst performers, a dubious distinction he first earned last year when the Advantage Plus fund lost more than half its value.

Paulson, who earned $15 billion with his bet against the overheated housing market, has been closely watched for years as thousands of wealthy investors poured billions of dollars in new money into hedge funds.

Known for making big bets and sticking with them for a long time, Paulson now looks out of step with the industry, where the average fund gained 1.7 percent during the first half.

His assets have shrunk from $38 billion in early 2011 to about $22 billion now.

A spokesman for Paulson declined to comment.

Paulson broke the bad news of fresh losses in June to his wealthy clients only on Tuesday, days after many of the industry's most-watched fund managers reported their numbers.

His Advantage Plus fund tumbled 8 percent in June, while the gold fund slipped 0.6 percent. But his Credit fund lost 2.8 percent, leaving it up 2.2 percent for the year, while his Recovery fund lost 2.3 percent, up only 3.5 percent for the year. The Partners fund fell 2.5 percent last month and is up 2.5 percent for the year.

Most of the losses stemmed from Paulson's bets against Europe, where more political wrangling helped stave off further declines. But he told investors he believes the efforts will prove insufficient, proving his bearish bets right in the long term.

"The risk of a European financial crisis is the largest risk in the market," Paulson wrote in a letter to clients. But he added: "Our funds are positioned to protect capital when market gyrations produce draw downs."

For many investors, July 2012 looks like a repeat of July 2011, when Paulson also reported an 18 percent loss for the Advantage Plus fund. He explained that he had been wrong in selecting some stocks and was off on when the U.S. economy would rebound.

While 2011 proved tough for hedge fund managers, 2012 is not proving any less challenging.

One of the last year's big winners, John Thaler's JAT Capital, has joined Paulson in the losers' group. His fund has lost about 20 percent this year, a person familiar with the numbers said.

Other losers include Greg Coffey, who runs an emerging market long/short equity portfolio at Louis Bacon's Moore Capital Management that lost 6.46 percent in June. That puts the fund down more than 14 percent for the year after having ended 2011 down almost 7 percent.

Bill Ackman's Pershing Square Capital Management, which was up about 10 percent during the first quarter, has also seen its gains shrink as retailer J.C. Penney, a major holding, continues to slide. The fund is now up about 2 percent.

But there are some winners as well. Lee Ainslie's Maverick Capital has rebounded this year and is up 15.10 percent through June 30 after gaining 1.79 percent for the month, according to data from HSBC's private bank. Last year it was off 15 percent.

(Reporting by Svea Herbst-Bayliss; Editing by Matthew Lewis and Dan Grebler)

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