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Paulson Said to Pare Advantage Plus 2012 Loss Last Month

Hedge-fund manager John Paulson
John Paulson, president of Paulson & Co. Inc., became a billionaire in 2007 by betting against subprime mortgages. Photographer: Scott Eells/Bloomberg

John Paulson, the hedge-fund manager overseeing $19 billion, pared losses in his Advantage Plus fund by gaining 4.5 percent last month, according to a person with knowledge of the returns.

The performance left the fund down 19 percent in 2012, said the person, who asked not to be identified because the information is private. The fund lost money last year on bets that the European sovereign-debt crisis would worsen and that gold stocks would rise. Advantage Plus seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns.

All of Paulson’s funds gained in December except his gold-related funds, the person said. Investors can choose between dollar- and bullion-denominated versions for most of the firm’s strategies. The Gold Fund, which can buy derivatives and other gold-related investments, slumped 5.1 percent last month, bringing its 2012 decline to 25 percent, the person said.

Armel Leslie, a spokesman for New York-based Paulson & Co., declined to comment on the firm’s returns.

Paulson, 57, started last year seeking to rebound from record losses in 2011, when his Advantage Plus fund fell 51 percent after wrong-way bets on a U.S. economic recovery. The Gold Fund fell 11 percent in 2011.

Paulson’s other strategies -- his credit, merger-arbitrage and recovery funds -- rose last year. Paulson became a billionaire in 2007 by betting against subprime mortgages.

Europe Losses

Paulson’s Advantage fund, which employs a similar strategy to Advantage Plus, gained 3.3 percent in December and fell 14 percent last year, the person said.

Paulson told clients in December he reduced bets that the European crisis would worsen. Those wagers led to most of the manager’s 2012 losses following European Central Bank President Mario Draghi’s comments in July that the ECB was committed to preserving the euro. Paulson had told investors in a February letter that the euro currency group was “structurally flawed” and would eventually fall apart. In April, he told clients he was betting against European sovereign bonds and buying credit-default swaps on the continent’s debt, as protection against the chance of default.

Slumping gold mining stocks also contributed to Paulson’s losses in his Advantage and Gold funds. The S&P/TSX Global Gold Index fell about 15 percent last year, including reinvested dividends. Paulson had also 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.

Gold Slump

Gold fell 2.2 percent in December as signs that U.S. lawmakers were closer to a budget deal reduced demand for the metal as an alternative asset. The metal rose 7 percent last year, capping the longest streak of annual gains since at least 1920, amid renewed concern that central banks from Europe to China will take inflationary steps to spur economic growth.

Among the funds that gained in 2012, Paulson Partners Enhanced increased 5.7 percent last month and 18 percent in 2012, the person said. The fund invests in shares of merging companies.

Paulson Credit Opportunities rose 3.4 percent in December and 9.1 percent last year, according to the person. The firm’s Recovery Fund gained 3.7 percent in December and 3.9 percent in 2012. That fund invests in assets Paulson believes will benefit from a long-term economic rebound.

Paulson & Co., whose assets peaked at $38 billion in 2011, managed about $28 billion a year ago.

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