Paolo Pellegrini, the former Paulson & Co. executive who helped the firm make more than $3 billion during the U.S. housing crash, said he stopped betting that equity prices will fall.
“I’m not short stocks anymore,” Pellegrini said today at the Hedge Funds 2010 Conference in New York hosted by Bloomberg Link. “So that’s a significant change.” He doesn’t like most bonds because prices are at “ridiculous levels,” he said.
U.S. equities will advance about 11 percent during the next year because earnings are rising and valuations are below historical levels, money managers Leon Cooperman and Laszlo Birinyi said at the conference. After a 79 percent rally in the Standard & Poor’s 500 Index since a 12-year low in March 2009, Cooperman said equities are more attractive than bonds even as economic growth is curbed by debt repayments.
Pellegrini, who in August said he will return money to clients of his Hamilton, Bermuda-based PSQR LLC, is also shorting the Japanese yen.
“I think it may have more to go,” he said. “I’m concerned about Japan.” The yen has gained 11 percent against the U.S. dollar and 20 percent versus the euro this year.
PSQR, which Pellegrini started last year, slumped about 11 percent in the first seven months of the year, after gaining 62 percent in 2009. A potential reopening of the fund to outside investors is “not a short-term issue,” he said, and is something he would consider in two to four years.
“I’m trying to put together a more stable team, focusing a lot on more quantitative types of disciplines,” he said, referring to the use of computer models to select securities to buy and sell. He cited D.E. Shaw & Co., the New York-based hedge-fund firm, as an “interesting example” of a quantitative hedge fund.
Pellegrini also said he is shifting toward favoring “very safe instruments.” He said futures on the euro, yen, gold, S&P 500, U.S. Treasuries, European and Asian markets are “extremely efficient.” He also said he favors exchange-traded funds.
“That’s basically what I think is a reasonable set of tools to manage money,” he said.
Pellegrini, 53, helped billionaire John Paulson engineer a bet against subprime mortgages that catapulted their hedge funds to gains of as much as 590 percent in 2007.
At PSQR, Pellegrini runs a macro hedge fund, which seeks to profit from broad economic trends by trading stocks, commodities and currencies.
“It’s important to have enough space to focus and really develop something that’s distinctive,” he said. “I felt I needed to step back.”