John Paulson: Cruising Through the Financial Crisis

John Paulson, founder and manager of hedge-fund firm Paulson & Co. is having another prosperous year. The 52-year-old Mr. Paulson, whose firm is based in New York, has gained a superstar reputation by betting against the housing market, which netted him last year more than $3 billion.

This year, according to Wall Street Journal, Paulson may reap another $500 million. Financial News Online revealed that the three main funds managed by his firm are up between 15% and 25%. Paulson Advantage Plus fund, netted a return of nearly 20% for the year to the end of August. The fund made 158.75% last year, growing parabolically from about $100 million at the start of fiscal ‘07 to almost $9 billion.

Paulson’s other fund, the Advantage fund, made more than 100% last year, followed by Credit Opportunities fund which as of Oct.1, was up 12.95%, having made 351.72% last year. These numbers are impressive when considering that the average hedge fund is down more than 17%. Last year, Mr. Paulson’s $35 billion firm scored big, with more than $15 billion in gains.

Mr. Paulson bet huge on Britain’s banks as well. A regulatory filing reported last month by Financial Times, showed Paulson’s firm had taken huge short positions on four of the five biggest U.K. banks. He borrowed and then sold Barclays (BCS) shares worth 1.2% of the bank’s value, or approximately $556 million. His positions also included similar bets on Lloyds TSB (LYG), worth approximately $412 million, and Royal Bank of Scotland (RBS), worth approximately $464 million. The total of the combined stake was around $1.6 billion.

Paulson says that both his long and short positions are based on company fundamentals, rather than short-term market movements.

Certainly, considering how the markets in recent weeks have nosedived, posting the kind of returns Paulson’s funds have, is impressive. However, Paulson says, “It doesn’t make him happy that the markets are down and so many people aren’t doing well,” but at the same time he admits being relieved that his firm is able “to sail through this crisis and remain in positive territory.”

Despite his success, Paulson continues to remain cautious. He mentions the fact that “history is full of investors who got it right, only to blow it on their next big trade.”

Mr. Paulson, noted the Journal, has made his share of mistakes in 2008, such as buying Mirant Corp. (MIR), which has lost more than 60% of its value in the past year, and Yahoo (YHOO), which has also been another decliner. Regardless of these red trades, one thing is evident; being able to rake in billions of dollars in gains, particularly under the current market environment shows Paulson’s ability to anticipate the markets correctly, and highlights his shrewdness as a businessman.

Disclosure: None

 

Comments

[MarvinMBA:]

Going back to fundamentals, this country was built on the basis of low priced oil. It resulted in an abundance of food and a higher living standard and a strong defense. The cost of energy in all its forms was in the noise and insignificant. Right now we are faced with the reverse because of various negative factors of our own making. The Government has been concentrating on external factors not paying attention to providing the energy the country needs in case of disruptions like the economic failures we now have to cope with. At one time we were able to BS oursleves out of it. It seems to me it too late to provide the fundamentals this country needs like cheap energy from home grown sources. Our sitiuation will continue on a downward spiral and it will be impossible to manipulate our way out of this...the world out there has finally understood our game plan and the Feds attemps to manipulate the failed institutions into life will result in failure and accelerate our fall to DEPRESSION.

2008 Oct 26 02:28 PM

[global87:]

outrageous

2008 Oct 27 08:52 AM

[Jason Rines...:]

Yeah, but after a bunch of pain the folks in Washington will get it as they are voted out of office en masse and favorable policy which encourages entrepenuarship is put into play.

The citizenship at large is re-learning fundamentals the hard way even while we speak. I do not like suffering but unless you were already seven figures prior to this time, we all will take our lumps to restore America. We have been here before and we will help each other through it. Have heart, not all of us are mindless sheeple :)

2008 Oct 28 03:43 PM