* Hedge fund manager Paulson builds up gold exposure
* AngloGold stake is part of wider gold drive
* Slim chance AngoGold could become M&A target
(Story originally published as a DEALTALK on Sept. 1. For
other stories in this series on hedge fund activity in the
second quarter, click on [ID:nN01502629])
By Joseph A. Giannone and Agnieszka Flak
NEW YORK/JOHANNESBURG, Sept 2 Billionaire hedge
fund manager John Paulson's big stake in AngloGold Ashanti
(ANGJ.J) is a strand of his heavy exposure to gold and not
designed to gain from the slim chance of a merger bid.
Before making billions of profits shorting mortgages and
banks in 2007 and 2008, Paulson & Co bought and shorted stocks
involved in mergers and other corporate events.
Yet mining giant AngloGold is out of bounds to all but its
largest rivals as a takeover candidate, industry observers say,
and Paulson's 12 percent stake in the group can hardly be a bet
its shares will rise on the back of a bid.
"I doubt very much that this is because of possible merger
and acquisitions (M&A) activity," said Stephen Roelofse, Cape
Town-based fund manager at Metropolitan Asset Managers.
Paulson has been building up a large exposure to gold this
year, seemingly part as a hedge against inflation fuelled by
governments trying to avert recession.
His investments are keenly watched after his credit
opportunities fund surged six-fold in 2007 and soared again in
2008 thanks to timely bets on the falling value of mortgages,
banks and other financial services firms.
Paulson declined to comment for this article.
The billionaire earned an estimated $2.5 billion from his
funds last year and dived into AngloGold in March, buying an
11.3 percent stake from Anglo American Plc (AAL.L) for $1.28
billion. Becoming the miner's No. 2 shareholder, he was quick
to praise management and its strategy.
Earlier this month, Paulson again voiced support for
AngloGold's board after regulatory filings revealed he had
become the Johannesburg company's largest shareholder with a 12
percent stake. [ID:nN12401520]
AngloGold became Paulson's third-largest listed-stock
position during the second quarter. By the end of June, the
42.8 million shares making up its 12 percent stake were worth
$1.63 billion, according to a filing.
Paulson's combined gold and gold-related investments make
up more than 46 percent of his firm's holdings.
They include SPDR Gold Trust, which invests in physical
gold bullion, and which had become his top holding at 30
percent of his portfolio in the first quarter.
He also amassed shares in Gold Miners ETF, at nearly 7
percent of his portfolio, and mining stocks Gold Fields Ltd and
a 4.4 percent stake in Toronto-based Kinross Gold (K.TO).
"This (AngloGold stake) is consistent with the gold shares
he's taken. It's more of a statement of his interest in gold
related equities," said Tom Burnett, research director at Wall
Street Access and a long time analyst of M&A.
Paulson is among a number of hedge funds managers stocking
up on the precious metal, for centuries considered a hedge
against inflation, as governments around the world ramp up
spending to combat recession.
David Einhorn's Greenlight Capital at the end of last year
bought gold-related Exchante Traded Funds and in the second
quarter switched over to physical gold.
At the same time, merger activity has also been warming up
in the precious metals sector. Several miners have made bids --
though few deals are getting done.
One of the few making headway is AngloGold's own to buy
Moto Goldmines MGL.TO in a $500 million deal in tandem with
Randgold Resources (RRS.L). [ID:nL1513534]
But only the biggest guns, such as Newmont Mining Corp
(NEM.N) or Barrick Gold Corp (ABX.TO), would be able to take on
AngloGold, said Metropolitan's Roelofse.
"They are very shy to have South African deep-level gold
mining in their portfolio ... the size of AngloGold and the
assets base make it very unlikely for M&A," he said.
Click on [ID:nN01234966] for details on top plays by hedge
funds in the second quarter
For a list of the top 30 hedge funds, go to
For a pie chart of the portfolio breakdown by sector, go to
For a graph on the change in market value by sector, go to
(Writing by Joel Dimmock; Editing by David Cowell)