When Zero Hedge first reported that the fund most exposed to the Sino Forest collapse is the once fabled and infallible (especially when it gets to pick the CDO portfolio it shorts) Paulson & Co, we suggested that the fund has lost $500 million on this one investment, pushing the firm deep into the red, and further calculated that the firm's flagship Advantage Plus fund was down about 13% for the year. Boy were we off. As the WSJ's Greg Zuckerman reports, Advantage Plus fund "lost more than 13% in the early part of this month, through June 10, leaving it down 19.65% for the year, according to two investors briefed on the performance...One problem for Mr. Paulson: The recent collapse in shares of China forestry company Sino-Forest Corp. The timber company has tumbled 80% since late May, amid allegations by a short seller of questionable accounting, which the company has denied. That collapse has resulted in a paper loss of more than $500 million for Mr. Paulson's firm, based on holding figures as of April 29 from FactSet Research. Paulson & Co. owned nearly 35 million shares of Sino-Forest, according to FactSet." Which means that rumors that Paulson, in addition to being long the stock, is also heavily long the firm's bonds which last traded just south of 60, are likely correct, and the Chinese fraud may have well cost the firm almost as much as it made on the now infamous Abacus CDO. And to think Zero Hedge predicted back in November that the Chinese fraudcaps would snag some very high profile targets. Little did we know that the complete lack of diligence characterizing most retail momo investors would befall the one fund that up until this point had basked in the halo of invincibility. At this point we would not be at all surprised if LPs, seeing a 20% plunge in their P&L, pull their capital from Paulson and put it in Muddy Waters, whose flawless track record is based purely on research and not on allegedly shady manipulative practices or economies of scale.
And all of this excludes Paulson's now disastrous bet that financial firms would surge, with the butt of all jokes being Paulson's bet that BofA would be worth $30 by the end of 2011. Maybe after a 1 for 3 reverse stock split...
Lately, as investors have dumped banks and other financial companies, Mr. Paulson's holdings have resulted in losses. Mr. Paulson's firm owned more than 41 million shares of Citigroup Inc. as of the end of March, according to securities filings, the firm's third-largest stock holding. Bank of America Corp. was Paulson & Co.'s sixth-largest holding.
Citigroup has dropped about 14% since March 31, while Bank of America has fallen about 21% in that period. It isn't clear how many shares Paulson & Co. retains of those companies, but Mr. Paulson has told investors that he is still a believer in financial shares.
Not all are losses:
One Paulson wager that is working: gold. At the start of 2009, Mr. Paulson launched a fund to buy gold investments and has told investors that he placed a good chunk of his own money in gold. The yellow metal is up more than 7% so far this year.
To think - one could have read Zero Hedge in March 2009 and come to the same investment conclusion without paying 2 and 20 for two years in a row.
And to think something else: should Paulson, which likely all other hedge funds is probably levered to the hilt, suddenly experience a deluge of redemption requests, here is what will promptly be sold off. In size.