Hedge Fund Tracking: Paulson & Co. (John Paulson), Q3 2008

by: Market Folly

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here.

Next up, we have John Paulson's Paulson & Co. Paulson & Co. is famous for making a fortune by betting against sub-prime when this whole mess began to unfold. And, it appears as if Paulson is still up to his fortune-making ways. One of his funds has generated a 589% return, which could easily be up there amongst the largest returns by a single hedge fund in a year. Paulson's Advantage Plus fund has returned 19.44% year-to-date as of the end of August. This is the same fund that gained 158% the year prior and has grown to almost $9 billion.

Paulson's bet against sub-prime has paid off and he has recently reversed course on that bet and has started to buy the assets he was previously short. In addition to his dances in sub-prime, Paulson recently disclosed a 14.6% stake in Cheniere Energy (NYSEMKT:LNG), and, prior to that, it was revealed that he was short U.K. banks. As we noted in our October hedge fund performance update, Paulson & Co.'s advantage plus fund was up 29.4% at the end of October. And, a week ago, Paulson went before Congress to testify with regards to the hedge fund industry.

The following were Paulson's long equity and options holdings as of September 30, 2008 as filed with the SEC.

New Positions (Brand new positions that it initiated in the last quarter):

  • Applied Biosystems (NYSE:ABI)
  • Anheuser Busch (NYSE:BUD)
  • Rohm & Haas (ROH)
  • Barr Pharma (BRL)
  • Genentech (Private:DNA)
  • BCE inc (NYSE:BCE)
  • Merrill Lynch (MER)
  • NRG Energy (NYSE:NRG)
  • Brocade Comm (NASDAQ:BRCD)
  • Time Warner Cable (TWC)
  • Hercules (HPC)

Added to (Positions it already held but added shares)

  • None

Reduced Positions (Positions it sold some shares of - note not all sales listed)

  • Mirant (MIR): Reduced position by 6%
  • Philip Morris Intl (NYSE:PM): Reduced position by 14%
  • Macrovision Solutions (MVSN): Reduced position by 38%

Positions with no change

  • Boston Scientific (NYSE:BSX)
  • Kinross Gold (NYSE:KGC)
  • Wrigley (WWY)
  • Dr. Pepper Snapple (NYSE:DPS)
  • Affiliated Computer (ACS)
  • Cheniere Energy (LNG)
  • Equity Media Holdings (EMDA)
  • Tronox (TRX.B)

Removed Positions (Positions it sold out of completely)

  • WH Energy Services (WHQA)
  • Hercules Offshore (NASDAQ:HERO)
  • Navteq (NVT)
  • Choicepoint (NYSE:CPS)
  • Applera
  • Nymex (NMX)
  • Bank of America (NYSE:BAC)
  • Yahoo (YHOO)
  • Clear Channel (NYSE:CCU)

Top 20 Holdings (by % of portfolio)

  1. Anheuser Busch (BUD): 25.8% of portfolio
  2. Rohm & Haas (ROH): 14.8% of portfolio
  3. Boston Scientific (BSX): 14.5% of portfolio
  4. Barr Pharma (BRL): 9% of portfolio
  5. Kinross Gold (KGC): 6.5% of portfolio
  6. Applied Biosystems (ABI): 4.8% of portfolio
  7. Mirant (MIR): 4.8% of portfolio
  8. Genentech (DNA): 4.2% of portfolio
  9. Philip Morris Intl (PM): 4% of portfolio
  10. Wrigley (WWY): 3.9% of portfolio
  11. BCE (BCE): 2.7% of portfolio
  12. Merrill Lynch (MER): 1.3% of portfolio
  13. NRG Energy (NRG): 0.7% of portfolio
  14. Brocade Comm (BRCD): 0.6% of portfolio
  15. Dr Pepper Snapple (DPS): 0.6% of portfolio
  16. Time Warner Cable (TWC): 0.5% of portfolio
  17. Macrovision Solutions (MVSN): 0.3% of portfolio
  18. Hercules (HPC): 0.28% of portfolio
  19. Affiliated Computer (ACS): 0.25% of portfolio
  20. Cheniere Energy (LNG): 0.15% of portfolio

Assets listed in the long portfolio this quarter were a little over $7 billion when compared to last quarter's $5.7 billion or so. It definitely looks as if Paulson is trying to play it "safe" in the equity markets by betting on mergers he thinks will still get done despite the credit crisis. His large stakes in ROH and BUD clearly illustrate that. Please note that Paulson's holdings are not necessarily primarily in equity markets, as it operates in numerous other markets. Also, keep in mind that these filings only include long equity and options holdings and do not reflect the cash or short equity portions of its portfolio.

This is the tenth hedge fund we've covered in our third quarter 2008 edition of our hedge fund tracking series in which we're tracking 35+ prominent funds. We've already covered Whitney Tilson's T2 Partners, Peter Thiel's Clarium Capital, Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, Timothy Barakett's Atticus Capital, John Griffin's Blue Ridge Capital, and Bret Barakett's Tremblant Capital.

Overall, its been one of the worst years ever for hedge funds, as we noted in our recent October hedge fund performance update. Thus, the recent moves they've made in their portfolios become all the more interesting given the way the market has played out.