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Paulson’s Fund Said to Lose 34% This Year After August Rout

John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, has lost 34 percent this year in his largest hedge fund, according to two people familiar with the firm.

Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, lost 15 percent last month, said the people, who asked not to be identified because the fund is private. That compares with a 5.7 percent decline last month in the Standard & Poor’s 500 Index. The fund’s gold-denominated share class has lost 17 percent this year, after declining 7 percent in August.

Paulson, 55, whose New York-based firm Paulson & Co. manages $35 billion, has scaled back bullish bets after losses this year. He reduced his stake in Bank of America Corp. (BAC) to 60.4 million shares as of June 30 from 124 million shares on March 31. The bank’s shares have tumbled 44 percent so far this year.

The hedge-fund industry has gained 3.4 percent in 2011 after falling 1.1 percent last month, according to the Bloomberg aggregate hedge-fund index. Paulson would have to return about 52 percent in the remainder of the year to break even in the Advantage Plus Fund.

Armel Leslie, a spokesman for Paulson, declined to comment on the returns.

Gold Fund

Paulson investors can choose between dollar- and gold- denominated versions for most of the firm’s funds. The metal jumped 12 percent last month on mounting speculation that the U.S. economic recovery would falter as the Federal Reserve pledged to keep borrowing costs at a record low and amid Europe’s sovereign-debt crisis. Forty percent of Paulson’s clients are invested in gold shares, according to a person familiar with the firm, who asked not to be identified because the information isn’t public.

The firm’s Gold Fund, which can buy derivatives and other gold-related investments, is the only dollar-denominated fund that has gained this year, surging 21 percent after jumping 18 percent last month.

Paulson’s dollar-denominated Advantage Fund, which employs a similar strategy to Advantage Plus, has dropped 23 percent this year, after falling 9.5 percent in August. The gold share class turned profitable and rose 1.4 percent this year after gaining 3.5 percent last month.

The Paulson Partners Enhanced Fund, which invests in the shares of merging companies, is down 5 percent this year after falling 7.5 percent last month. The gold share class has gained 15 percent in 2011 after advancing 2.5 percent in August.

The Paulson Partners Fund, which employs a similar strategy to Partners Enhanced, has fallen 1.9 percent this year after declining 4.3 percent in August. The gold share class has gained 21 percent this year after climbing 5.5 percent last month.

Paulson lost 11 percent last year through August with his $9 billion flagship fund before posting profits by the end of the year and making about $5 billion personally.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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