UPDATE 1-Hedge fund manager Paulson posts gains in first quarter

Thu Apr 4, 2013 6:34pm EDT

By Svea Herbst-Bayliss

BOSTON, April 4 (Reuters) - After two years of losses, hedge fund manager John Paulson's best-known funds got off to a better start in 2013.

The billionaire investor told clients on Thursday that the bulk of his portfolios, including the Advantage funds which had lost money in 2012 and 2011, were in the black.

His gold fund, however, notched double digit losses during the first three months of 2013.

"We are pleased about the strong start to 2013 and believe performance in the Recovery, Merger, Credit and Advantage funds demonstrate our event-driven portfolios are well positioned for continuing positive performance in 2013," the firm wrote to its investors, according to someone who had seen the letter but is not authorized to speak to the media.

Paulson's Advantage Fund gained 6 percent in March and is up 3.4 percent for the first quarter. The Advantage Plus fund climbed 4.6 percent in March and is up 8.3 percent.

Gains in financial stocks and consumer helped performance improve in those funds this year.

The Recovery Fund climbed 8.4 percent in March and is up 14 percent for the quarter while the Credit fund climbed 10.5 percent this year after a 5.7 percent gain in March, thanks largely to preferred and convertible debt portfolios.

The positive returns offer some long awaited good news to investors who have seen the Advantage funds, once Paulson's biggest and best known portfolios, suffer losses last year and in 2011 when the Advantage Plus fund lost roughly 50 percent of its value.

Even though Paulson vowed in early 2012 to turn things around, ongoing losses last year prompted some prominent investors including Citigroup to pull money out. In December Morgan Stanley Smith Barney recommended that its financial advisers pull client money out of the Advantage and Advantage Plus funds.

Paulson earned a reputation as a savvy trader when his bet against the overheated housing market earned his firm and himself billions of dollars in 2007. In 2009 his bet on gold extended his winning streak.

But in 2011 he made an aggressive bet on an economic recovery which did not materialize as quickly as he thought and cost clients money. Also he made a losing bet on Chinese forestry company Sino Forest.

Assets shrunk to roughly $18 billion from $38 billion in early 2011.

A U.S. judge threw out a law suit last week where a former Paulson investor charged that the fund manager failed to properly research the Sino Forest investment.

Clearly Paulson has made adjustments in the portfolio and the current gains in the stock market have helped him too.

But his bet on gold remains a sore spot.

Paulson's gold fund, the smallest of his portfolios, lost money again - dipping 3 percent in March to end the first quarter down 28 percent. Losses in AngloGold Ashanti, a big holding for Paulson, hurt the fund.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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