Singer's Elliott hedge fund struggled to make gains in quarter

* Distressed securities, performing debt helped returns; equities, gold hurt

* Chief trading officer Brian Miller left firm

* Singer sees markets in "period of calm before a storm"

By Katya Wachtel

NEW YORK, Aug 8 (Reuters) - Frustrating, annoying and unsatisfying are three words veteran hedge fund manager Paul Singer used to describe the second quarter of the year, when his hedge fund lost some ground as bets on gold and stocks hurt the portfolio.

His flagship fund, Elliott Associates, lost 0.5 percent over the period, not enough to materially hurt its gains so far this year, which through June 30 were 4.6 percent, according to an investor letter reviewed by Reuters. Singer has consistently been one of the industry's top performers, with annualized returns of 14 percent since the fund was launched in 1977.

"It was a frustrating quarter, with market stress causing volatility in certain sectors," Singer wrote in the note dated July 31. "Intense price action reportedly forced some firms to unwind trades, further exacerbating underlying price movements."

U.S. hedge funds lost 2.7 percent, on average, in the second quarter, according to hedge fund tracking firm HFR, while the Standard & Poor's 500 Index sank 3.3 percent.

Singer told investors that bets on distressed securities, performing debt, and portfolio protection credit trades were profitable in the second quarter, while investments in "portfolio protection trades" related to interest rates, stocks and gold hurt returns.

The New York-based money manager, who expressed skepticism about investors pouring cash into "safe-haven" bonds of countries such as the U.S. and Japan, added positions in real estate securities and structured products between April and June.

"In those markets, there still seems to be a sweet spot of labor intensive, complex, small- to medium-size situations, which we are taking on at attractive prices, despite the general overpricing of mainstream or trophy properties," he said.

But he advocated selling the long-term government debt of the United States, Japan, Britain and Europe, saying it is "basically all risk, with very little reward" going forward.

In the note, Singer also made reference to the July departure of Brian Miller, who was named a partner in the hedge fund in 2010 and was Elliott's chief trading officer. Co-Chief Investment Officer Jon Pollock will replace Miller.

Elliott Management's two main funds, Elliott Associates and Elliott International, managed about $19.8 billion as of July 1.

A spokesman for the hedge fund firm declined to comment on the contents of the letter.

GOVERNMENTS BRING MORE GLOOM

The euro zone crisis continues to exasperate hedge fund managers worldwide; Singer noted that a resolution to the dilemmas does not seem imminent. However, like many of his colleagues in the $2 trillion hedge fund industry, Singer anticipates that any major economic or market convulsion will eventually provide a bounty of investment opportunities.

"Global financial markets currently feel like they are in a period of calm before a storm, possibly centered on the European situation," Singer wrote, adding that when the storm arrives, "we are ready to don our foul-weather gear."

As has become a regular feature of his quarterly letters, Singer criticized the Obama administration, condemning the White House for proposed tax increases on the top tax bracket, and "its tone of hostility toward business, and boosting the unreviewable discretion of regulators."

Singer is a prominent Republican party donor who has helped to raise millions for Mitt Romney, and has been a longtime vocal critic of Obama.

For the hedge fund manager, who has been trading under the Elliott banner for 35 years, what he sees as the failings of the current U.S. administration are just one part of an increasingly complex web of global forces that are making the markets much harder to trade.

"It is more difficult than ever to select 'good' First World investments based on careful financial analysis, fancy models, instinct or any other method," Singer wrote. "Recommending shifts among bonds, which have almost no yield, highly volatile stocks and cash with zero yield is a thankless task."