John Paulson, the billionaire hedge-fund manager coming off record losses in 2011, further pared declines in his Gold and Advantage funds last month, according to two people familiar with the matter.
Paulson’s Gold Fund, which can buy derivatives and other gold-related investments, rose 13 percent in September as bullion rallied, cutting losses this year to 3.9 percent, said the people, who asked not to be named because the information is private. The Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, gained 3.6 percent last month, reducing losses since the start of the year to 14 percent.
Bullion and companies that mine for it, which had been the main drivers of losses in the Gold and Advantage funds this year, rallied last month as the U.S. Federal Reserve announced a third round of monetary stimulus, boosting demand for the precious metal as a store of value.
Paulson, 56, who became a billionaire by betting against the U.S. subprime-mortgage market, told clients in February that gold was his best long-term bet, serving as protection against currency debasement, rising inflation and a possible breakup of the euro currency.
Armel Leslie, a spokesman for $20 billion Paulson & Co., declined to comment.
The Advantage Plus fund’s gold share class rose 6.8 percent in September and fell 5.2 percent for the year. Investors can choose between gold- and dollar-denominated versions for most of New York-based Paulson & Co.’s funds.
Paulson’s Advantage Fund, which employs a similar strategy to Advantage Plus, gained 2.6 percent in September, reducing its 2012 decline to 11 percent. Its gold shares climbed 6 percent last month and 0.8 percent this year.
Paulson told clients in a letter sent yesterday that his firm decreased its hedges, or offsetting trades, after the Fed outlined additional steps to boost the economy and the European Central Bank took measures to guard against a sovereign default, according to one of the people who saw the memo. Paulson told investors in April that he was shorting, or betting against, European sovereign bonds and buying credit-default swaps on the region’s debt as protection. In February, he said the euro was “structurally flawed,” and would eventually fall apart.
Paulson’s credit and recovery funds fell in September, primarily because of hedges, he said in the letter, according to the people. The Credit Opportunities Fund dropped 1.5 percent last month and rose 2 percent year-to-date. Its gold shares gained 1.9 percent in September and 10 percent this year. The fund jumped almost sevenfold in 2007, largely because of Paulson’s bets against the U.S. subprime-mortgage market.
The Recovery Fund, which bets on assets Paulson believes will benefit from a long-term economic advance, it declined 1.2 percent last month and rose 0.5 percent in 2012, the people said. The gold share class climbed 2.8 percent in September and 10 percent this year.
Paulson’s Enhanced fund, which invests in shares of companies that are involved in mergers, didn’t make or lose money in September. This year, it’s up 9.1 percent. The gold share class rose 3.7 percent last month and 16 percent in 2012.