After Several Ugly Months, John Paulson Is Slowly Turning Bearish Again
After an ugly Q2 and a Friday several weeks ago in which the Paulson funds were collectively down by about a billion dollars, the recently overly bullish hedge fund manager has decided to turn just a little more bearish once again. As The Financial Times reports, the fund has taken down its overall net leverage materially lower across all its funds: "Amid increasing uncertainty over the sustainability of the US recovery and a vicious second quarter that saw many funds hit hard by a spike in market volatility, Paulson & Co has cut its net long bets across almost all its funds. The $3bn Paulson & Co Recovery fund, which was launched in late 2008 to take advantage of a bounceback of the US housing market and economy, has decreased its net exposure from 140 per cent to 107 per cent in recent weeks, the Financial Times has learnt. Net exposure is a measure used by hedge fund managers as a gauge of their directional bias, and is calculated by subtracting total short positions from total long positions, with leverage taken into account. Mr Paulson’s flagship Advantage fund, which manages $9bn of client money, has also shrunk its net long exposure from 72.4 per cent to 67.3 per cent. The more specialist $4.3bn merger arbitrage funds – which make money by trading corporate names engaged in takeover talks – have also scaled down from 58 per cent to 50 per cent."
According to fund of funds managers we have spoken to, the only fund that has performed well over the past several months was the firm's credit fund, with everything else "sucking a**." Yet when one is $30 billion, and has no nimbleness whatsoever to rotate in and out of positions quietly, the assumption that Paulson can achieve the same types of returns that propelled him to superstardom is very naive. It is unclear as yet if the bearish portfolio managers who had gotten the sack as recently as three months ago, at the very peak of the 2010 stock market, are also going to get their jobs back as part of the change in market perception.