June 15, 2011 / 10:52 PM / 8 years ago

Paulson's Advantage Plus fund off 20 pct this year

* Paulson’s Advantage Plus fund off 20 pct this year

* Sino-Forest losses weigh heavily on performance

By Svea Herbst-Bayliss

BOSTON, June 15 (Reuters) - For John Paulson, June may be one for the record books — in the most unwanted way — as one his largest funds lost 13 percent in the first two weeks.

The billionaire hedge fund manager, who made his fortune on a short bet against subprime mortgages, ironically is being crushed after a short seller issued a critical report on a Chinese forest company he owns shares in.

Paulson’s Advantage Plus fund, one of the $38 billion firm’s largest, has tumbled nearly 20 percent this year after losing 13 percent in the first two weeks of June. Part of the decline is attributed to shares of Sino-Forest Corp TRE.TO which plunged 82.50 percent this month, an investor in the fund who is not permitted to discuss performance publicly said.

In early June Carson Block, founder of investment firm Muddy Waters Research, called Sino-Forest a “pump and dump” scheme and accused it of committing fraud.

Paulson’s spokesman could not be reached for comment.

In some respects, the sharp drop off in June, following a 6 percent drop in May, is not surprising given both the decline in Sino-Forest and an ongoing drop in the banking stocks Paulson also owns.

The bulk of Paulson’s assets are in the Advantage and Advantage Plus funds but he also offers other portfolios, including a gold fund, which are performing better.

But the 20 percent decline is stunning nonetheless for a manager who is widely revered for his calls on the economy.

But the timing of the drop comes at an especially awkward time, only days after Paulson met with hundreds of his investors in Paris at a festive mid-year review.

At workshops and during in-depth information sessions held amid cocktail parties and an elegant river cruise, the hedge fund manager told his clients that the economic recovery is not as strong as he would like to be, investors who attended the meeting said. The weakest spot — the U.S. housing market, he said.

While Paulson’s investors saw a drop in performance early in 2010 as well, they were later comforted when he rallied late in the year to pull out another winner.

This year, however, the eye-popping loss might be giving some investors reason to pause especially as deadlines to withdraw their money come up, people familiar with investors’ thinking said.

In fact, Paulson stayed on in Europe after a meeting in Paris to try and raise more money. He traveled to Geneva where he met with investors, a person familiar with his travels said. (Additional reporting by Matthew Goldstein, editing by Bernard Orr)

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