John Paulson, the billionaire hedge-fund manager seeking to reverse record losses in 2011, posted a 13 percent decline last month in his Gold Fund as bullion and mining stocks fell, said a person briefed on the returns.
The loss leaves the $1.2 billion fund, which can buy derivatives and other gold-related investments, down 23 percent this year, said the person, who asked not to be identified because the information is private. The fund has lost 2.5 percent a year on average since inception in January 2010. Paulson & Co. manages about $24 billion in assets.
Paulson, 56, who became a billionaire in 2007 by betting against the U.S. subprime mortgage market, told clients in February that gold is his best long-term bet, serving as protection against currency debasement, rising inflation and a possible breakup of the euro. Gold miners are historically inexpensive, he said at a meeting with investors in April.
Gold-mining stocks in the 64-member S&P/TSX Global Gold Index slumped 1.9 percent in May and 15 percent in the first five months of 2012. Bullion fell 6 percent last month as Europe’s escalating crisis drove investors to seek the U.S. dollar as a haven over the precious metal.
Armel Leslie, a spokesman for New York-based Paulson & Co., declined to comment on the returns.
The losses in bullion and gold stocks left Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, down 0.5 percent in May and 9.3 percent in 2012. The fund had a 25 percent allocation to gold-related investments, according to a first-quarter letter the firm sent to investors.
Paulson & Co. told investors in a June 5 letter accompanying the funds’ returns that gold equities contributed to a 2.1 percent gain during the last two weeks of May in the Advantage Fund, which employs a similar strategy as the Advantage Plus Fund, the person said. In comparison, the Standard & Poor’s 500 Index fell about 4.5 percent during the same period, the firm said.
The Advantage Plus Fund’s gold share class fell 2.3 percent in May and 8.3 percent this year. Investors can choose between gold- and dollar-denominated versions of most of Paulson’s funds. The Advantage Fund fell 0.3 percent in May and 6.3 percent this year. Its gold share class fell 4.2 percent last month and 5.2 percent in 2012.
Paulson is seeking to reverse 2011 losses from an ill-timed bet that caused him to scale back risk before stock markets started to rally late in the year. About 20 percent of Paulson’s investor base is currently underwater on the fund holdings, the person said.
Paulson’s Recovery Fund, which invests in assets Paulson believes will benefit from a long-term economic rebound such as financial services, insurance, hotels and real estate companies, fell 2.3 percent in May and gained 5.9 percent in the first five months of 2012. The gold shares slumped 5.5 percent last month and advanced 4.5 percent this year.
The Paulson Partners Enhanced fund, which invests in the shares of companies that are involved in mergers, declined 1.2 percent in May and climbed 9.4 percent this year. The gold share class fell 4.6 percent last month and gained 8 percent in 2012.
Paulson’s Credit Opportunities Fund rose 0.9 percent last month and 5.3 percent in 2012. Its gold shares fell 3 percent in May and advanced 3.8 percent this year. The fund jumped 590 percent in 2007, largely because of Paulson’s bets against the U.S. subprime mortgage market.
Some of Paulson’s returns were reported earlier today by Business Insider.