Billionaire John Paulson, the hedge-fund manager seeking to reverse two years of losses in some of his strategies, lost 27 percent in his Gold Fund last month after the precious metal and related securities plummeted, according to two people familiar with the matter.
The loss brings the strategy’s decline to about 47 percent this year, said the people, who asked not to be identified because the information isn’t public. The fund is made up primarily of Paulson’s own money, one of the people said. The strategy has about $500 million, down from about $700 million at the end of March.
Gold fell 7.8 percent last month, including the biggest two-day decline since January 1980, as the U.S. economic recovery gained momentum, the dollar rose and Federal Reserve policy makers signaled they may scale back asset purchases, curbing demand for the metal as a haven. Bullion producers slumped 20 percent, including reinvested dividends.
Armel Leslie, a spokesman at Walek & Associates for New York-based Paulson & Co., declined to comment on the returns. Paulson’s firm oversees about $18 billion in assets.
The Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and has a portion invested in gold miners, fell 0.7 percent in April and rose 3.9 percent this year, one of the people said. The Advantage Fund, which employs a similar approach without adding leverage, declined 0.9 percent last month and rose 2.6 percent in 2013, according to the person. The strategy had $4.5 billion in assets.
All of the gold-share classes slumped last month except for Paulson’s Recovery Fund, which makes bets on investments designed to benefit from a long-term economic advance, the person said. Investors can choose between gold- and dollar-denominated versions of most of the firm’s funds. About 97 percent of capital in the dollar-share classes gained this year, the firm said in a letter to clients yesterday, according to the person. The firm did not disclose in the letter how much money is in the dollar- versus gold-share classes.
The gold-share classes, which Paulson started in April 2009, have gained an average 48 percent more than the dollar-share classes cumulatively since inception, the person said. The gold-share classes are comprised primarily of Paulson & Co. employees’ money, according to the person.
Gold stocks’ current valuations are at historic lows and have considerable opportunities to rise, the firm reiterated in the letter, the person said. Paulson has said gold is the best protection against currency debasement and inflation, a sentiment echoed earlier this month by Paul Singer’s Elliott Management Corp.
In contrast, Coutts & Co. scaled back gold holdings as prices fell through $1,600 an ounce, saying that a return to the peak isn’t likely unless there’s a crisis in the Middle East, a weaker dollar or a jump in inflation. The private-banking division of Royal Bank of Scotland Plc holds about 1 percent to 2 percent in its portfolios, compared with 6 percent to 7 percent at the end of the third quarter, Gary Dugan, Coutts chief investment officer for Asia and the Middle East, said in an interview.
Dollar shares of the Recovery Fund, Paulson’s best-performing strategy this year, rose 6.6 percent in April and 22 percent in 2013, the person said. The fund gained because of its stakes in insurance and asset-management companies, the firm wrote in the letter, according to the person. The strategy had $1.7 billion in assets at the end of March.
Paulson’s Credit Opportunities Fund, the firm’s largest strategy, with about $5.9 billion in assets, rose 1.3 percent in April and 12 percent this year, the person said. The fund rose because of investments in bank debt and defaulted, mortgage-backed and convertible securities, the firm wrote in the letter, according to the person.
Paulson Partners Enhanced, a merger-arbitrage fund, climbed 3 percent last month and 14 percent this year, the person said. The firm’s merger strategy had $5.3 billion.
Paulson, who made $15 billion for his investors in 2007 by betting against subprime mortgages before the housing collapse, is seeking to rebound from wrong-way bets on a U.S. economic pickup in 2011 and a worsening European debt crisis, bullion and gold stocks in 2012. The firm’s merger strategy is the only one above its high-water mark, or previous peak value, the person said. Managers whose funds fall below the mark aren’t able to charge performance fees until they recoup losses.