BOSTON May 7 Gains in Greek banks' shares gave billionaire investor John Paulson's $3.2 billion Recovery Funds a lift during the first quarter, and future returns are expected to keep climbing as the housing and real estate markets continue to recover.
The Recovery Fund LP gained 5.58 percent in the first three months of 2014, thanks in part to strong returns on Greece's Alpha Bank and Piraeus Bank, Paulson told investors in his latest funds update, which was seen by Reuters.
The average hedge fund gained only 1.07 percent during the first quarter. Hedge funds often take a few weeks to assemble their quarterly reports. Paulson sent his out to investors in the last days.
Paulson, whose investments have been widely followed ever since the firm earned billions by betting against the overheated mortgage market, bought into the Greek banks a year ago when they needed a capital injection. He said that he expects "there to be new opportunities" in Europe as the region emerges from its crisis.
Paulson & Co manages $22 billion, making it one of the hedge fund industry's biggest firms, and thanks to its strong returns last year, Paulson himself earned $2.3 billion last year, according to Institutional Investor's annual ranking.
The Recovery Funds were launched during the financial crisis with an eye to investing in sectors like banking, hotels and real estate that would grow as the economy recovers.
Paulson also said that the funds invested in two private placements of auto lender Ally Financial, which had been General Motors' financing arm, and that he expects earnings to increase "substantially" over the next years. Earlier this month, the company reported a smaller first-quarter profit as it exited various businesses.
Insurer Genworth Financial also helped boost returns as its stock price has gained 131 percent since Paulson bought it early last year. "Medium term, if the company chooses to spin-off its mortgage insurance and other life insurance businesses into two separate companies, there could be substantial additional upside," the manager wrote.
In the firm's Advantage Funds, which rose to prominence in 2007 when the Advantage Plus LP surged 163 percent, MGM Resorts helped. The company's stock gained 102 percent last year and rose 10 percent in the first quarter.
The Advantage Funds had a rocky 2011 and 2012 but roared back last year, when Advantage Plus returned 32 percent, keeping pace with the S&P 500 stock index and handily beating the average hedge fund's 9 percent return.
Despite a 7.4 percent loss in March, the fund gained 4.31 percent during the first quarter.
Paulson, known for his big investments in gold even when the price was tumbling, said stronger gold prices during the first quarter helped the gold stocks he owns, with the Market Vectors Gold Miners Index climbing 11.7 percent.
(Reporting by Svea Herbst-Bayliss; Editing by Jan Paschal)