John Paulson posted an 18 percent decline in his Gold Fund last month as a slump in the metal, after more than a decade of gains, undermined efforts by the billionaire hedge-fund manager to rebound from two years of losses in some strategies.
The $900 million Gold Fund, which invests in bullion-related equities and derivatives, is down 26 percent this year, Paulson & Co. said yesterday in a client update obtained by Bloomberg News. The firm’s Advantage funds also fell in February after the metal and related stocks weakened as signs of economic optimism curbed gold demand.
Paulson is being hurt as gold fell for the fifth straight month, its longest slump in 16 years. The manager told clients in 2012 his Gold Fund would beat his other strategies over five years because the metal was the best hedge against inflation and currency debasement as countries pump money into their economies. Falling gold stocks helped fuel losses last year in the manager’s $4.9 billion event-driven Advantage funds and the Gold Fund, and he also made wrong-way bets that Europe’s debt crisis would worsen.
“Despite the volatility and drawdown of our gold equity positions, we believe in the long-term outlook for these positions as quantitative easing programs continue around the world, credit expands in the United States, and gold equities continue to trade at a significant discount” to historical average valuations, the hedge fund said in a letter sent yesterday to investors, which was obtained by Bloomberg News.
Armel Leslie, a spokesman for $18 billion Paulson & Co., declined to comment on the returns.
Hedge funds on average fell 0.4 percent last month, trailing global stocks, and rose 1.5 percent this year, according to data compiled by Bloomberg.
All of the gold share classes of the firm’s funds posted declines in February, Paulson & Co. said in the update. Investors can choose between gold- and dollar-denominated versions of most of Paulson’s funds. About 55 percent of the firm’s investors and 85 percent of Paulson’s money are in the gold-share classes, Paulson said last month at the EnTrust Investor Summit in New York.
Paulson also said at the EnTrust meeting that his best idea is Freeport-McMoRan Copper & Gold Inc. The firm bought Freeport shares in December following a 16 percent drop in one trading session after the company said it agreed to buy Plains Exploration & Production Co. and McMoRan Exploration Co., Paulson & Co. said in a year-end letter to investors.
Paulson’s dollar-denominated Recovery, Credit and Merger funds gained in February.
The Paulson Credit Opportunities fund, Paulson’s largest strategy at $5.7 billion, climbed 1.3 percent in February and 4.3 percent in 2013. The Recovery Fund, which has $1.5 billion and bets on assets Paulson believes will benefit from a long-term economic advance, climbed 1.6 percent last month and 5.8 percent this year.
Paulson Partners and Paulson Partners Enhanced, the firm’s merger-arbitrage strategy with $5 billion in assets, increased 0.5 percent and 1 percent last month, respectively, and 3.8 percent and 7.2 percent in 2013.
Paulson’s Advantage Plus and Advantage funds, which seek to profit from corporate events such as takeovers and bankruptcies, fell 4.7 percent and 3.4 percent, respectively, in February, bringing this year’s losses to 3.5 percent and 2.5 percent.
The Advantage funds lost 19 percent and 14 percent, respectively, in 2012 after Paulson made bets on a worsening European sovereign-debt crisis and that gold stocks would rise. In the second half of last year, Paulson, 57, gradually eliminated the Europe-related wagers, he said in the year-end letter.
Paulson, who became a billionaire in 2007 by betting against subprime mortgages before the housing collapse, posted record losses in 2011 when he made wrong-way bets on a U.S. economic recovery.