By Katya Wachtel
NEW YORK May 7 Hedge fund billionaire John
Paulson is emerging as one of the biggest losers in this year's
gold rout, further tarnishing his once legendary status in the
$2 trillion hedge fund industry.
Paulson's $700 million gold fund lost a whopping 27 percent
in April, when the price of the metal plunged 17 percent over a
two-week stretch, according to performance figures provided by a
person familiar with the fund.
The jarring one-month decline in the Paulson gold fund
brings the year-to-date loss for the fund to about 47 percent,
the source said. The fund's losses were magnified by the fact
that its bullish bet on gold was enhanced with leverage, or
borrowed money, and derivatives tied to the price of gold.
The majority of the money invested in the Paulson gold fund
is believed to be the billionaire's own.
Paulson rose to fame after he made $15 billion for his firm
in 2007 by betting against subprime mortgages before the housing
collapse.Since then, however, he
has struggled to duplicate that success, and several of his
portfolios have lagged in recent years.
Assets under management at his Paulson & Co firm have
dropped to $18 billion, down from $38 billion in early 2011, due
to investor redemptions and poor performance.
To be fair, the April selloff in gold was particularly
fierce and came as a surprise to many hedge fund managers who
were long either gold bullion or the SPDR Gold Trust,
the most popular gold exchange-traded fund.
Hedge fund manager David Einhorn said on a conference call
on Tuesday, "We were somewhat surprised by the swift decline in
the price of gold in April."
Paulson disclosed the gold fund loss to investors on Monday
along with results for his other funds, the source said.
Over two weeks in April, the price of gold plunged 17
percent, from $1,603 per ounce to a low of $1,321 on April 16,
before starting to rebound. As of Tuesday, the metal was trading
Regulatory filings show that at the end of last year
Paulson's firm was the largest holder of the SPDR Gold ETF, with
21.8 million shares. Paulson has not yet disclosed its latest
position in the gold ETF. Since the beginning of the year, the
gold ETF has fallen about 14 percent.
Paulson's hedge funds also are large investors in shares of
gold mining companies, which similarly have sold off this year.
Until this year, gold had been a solid investment. In the
wake of the financial crisis, a number of hedge funds began
buying gold as a hedge against inflation. But inflation has yet
to materialize, despite the Federal Reserve's aggressive
purchases of Treasuries and mortgage bonds to stoke the economy.
Paulson's more widely held Advantage fund declined 0.8
percent in April, largely because of its gold positions, the
source said, and is up 2.5 percent for the year through April.
The Advantage fund and a leveraged version of it were once
two of Paulson's most popular funds but now have less than $5
billion in assets.
The average hedge fund is up a little over 3 percent this
year, while the Standard & Poor's 500 is up about 13 percent.
It's not been all bad news for Paulson. Two other funds
managed by him are performing well this year and far outpacing
the returns of the average hedge fund.
His credit-focused fund, which invests in mortgage
securities and bank debt, is up 11.9 percent for the year. The
Paulson Recovery fund, which invests in some insurers and asset
management firms, is up 21.8 percent. And a merger-focused fund
is up 7.1 percent.
Paulson will be one of the featured speakers at this week's
SALT Conference in Las Vegas, a popular event with wealthy
investors. The conference, sponsored by Skybridge Capital,
begins Tuesday night.