John Paulson, manager of $20 billion in hedge funds, told investors that the bulk of his losses this year came on bets that the European sovereign-debt crisis would worsen, according to a person familiar with the matter.
Paulson, speaking to clients at his firm’s annual meeting yesterday in New York, said he has reduced those positions following European Central Bank President Mario Draghi’s comments in July that the ECB was committed to preserving the euro, said the person, who asked not to be identified because the meeting was private.
Paulson said in a February letter to investors that the euro was “structurally flawed” and would eventually fall apart. In April, the founder of New York-based Paulson & Co. told clients he was wagering against European sovereign bonds and buying credit-default swaps on European debt, or protection against the chance of default.
Paulson’s Advantage Plus fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, lost 3 percent in October and was down 17 percent in the first 10 months of this year. The Advantage strategy, which includes the firm’s similar Advantage Plus fund, has $6 billion in assets. Paulson Credit Opportunities, the firm’s largest strategy, with $6.1 billion in assets as of the third quarter, rose 3.8 percent in October and 6 percent this year.
Paulson lost 51 percent in his Advantage Plus Fund in 2011, mostly on a failed bet on an economic rebound.
Armel Leslie, a spokesman for Paulson & Co., declined to comment on the meeting.
Paulson said his firm added seven investment staff members this year and five departed, leaving the team at 52 people, according to the person, who attended the meeting at the Time Warner Center in Manhattan.
Among the departures was Nikolai Petchenikov, who had worked at Paulson & Co. for 12 years and was a managing director in London, Paulson said, according to the person. The firm hired Mark Gordon, a former Soros Fund Management LLC employee, to focus on energy; Rajeev Shah, formerly of Soundpost Partners LP, for technology; and Ned Dybvig, previously of Camulos Capital LP and Soros’s firm, for distressed investments, Paulson said, according to the person.
Paulson also said one of the bright spots in the U.S. economy is the recovery in housing, according to the person. Paulson, 56, became a billionaire in 2007 by betting against subprime mortgages. He started buying residential and commercial mortgage securities in late 2008 and 2009. Other hedge-fund managers who have reversed bets against the U.S. housing market include Kyle Bass of Hayman Capital Management LP and Greg Lippmann of LibreMax Capital LLC.
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