Paulson's Advantage Plus Fund Returns 12.5% In September, Flat For The Year

Paulson's largest Advantage fund, which managed $16.6 billion as of the end of Q2, and which was down 11% as of the end of August, has managed to ride the beta wave, which we expected in the beginning of September would miraculously come and rescue thousands of underwater hedge funds, and prevent tens of billions in redemption requests. As a result, Advantage pulled off a 12.5% return in September, outperforming the broader market 8.8% bounce over the same time period. Yet even with a gain of over $1 billion, the billionaire investor is just about breakeven for the year (in dollar-denominated terms), which taking high water marks and all that, likely means bonuses for all those analysts on the 50^th floor of 1251 Ave of the Americas will be certainly subpar unless somehow the beta wave continues into the end of the year even as additional tens of billions in capital is pulled out by retail investors.

WSJ has more on the beta-driven turnaround:

As stocks struggled during much of 2010, bullish hedge-fund managers like John Paulson looked like naive optimists.

They got their revenge in September. Mr. Paulson, who racked up losses during the first eight months of the year and was criticized for an upbeat view on markets, enjoyed gains of about 12.5% in his biggest fund in September, according to an investor. Those returns trounced the 8.8% gain for the Standard & Poor's 500-stock index, its best September since 1939.

Mr. Paulson, who runs Paulson & Co., scored double-digit gains in at least two other funds, including one that focuses on gold and another betting on a turnaround for various investments

Here are how some other hedge funds fared:

Some others who had viewed investors as being too pessimistic this summer scored even larger gains in September. Joshua Fink, the son of BlackRock chief Laurence Fink and founder of Enso Capital Management, was up about 14.5% in September, according to an investor. The firm, which manages about $200 million in its hedge fund, is up about 25% so far this year, according to the investor, thanks to big wagers on commodity-related shares, such as Freeport-McMoran Copper & Gold Inc. and Molycorp Inc.

The gains by the optimists didn't necessarily mean losses by their gloomier competitors. Another prominent investor, Daniel Loeb, held on to some shares and debt investments, such as mortgages, over the summer that he judged to be capable of gaining ground even if the economy slumped as he expected. The stance helped his fund, Third Point LLC, gain 4% in September; his funds are up about 20% this year.

One word here: survivorship bias. We will deconstruct the other $1 trillion + in AUM as soon as we get the latest HSBC report.

As for where institutional money is coming from, think shorting the 10 Year:

There is a recognition among some hedge funds that "buying a 10-year U.S. Treasury at only 2.50% leaves little room for appreciation and plenty of risk to the downside," says Alan Zafran, co-founder of Luminous Capital, a Los Angeles-based investment adviser that invests in hedge funds. "Our managers have been increasing their equity exposure, particularly in large-cap, global franchises with high earnings yields" such as Coca Cola Co., Johnson & Johnson and Microsoft Corp., Mr. Zafran says.

Our only question, which we have been posing for about 2 years: why pay 2 and 20, in an environment in which implied correlation is 80%, in which alpha generation is non-existant, and in which the only performance comes courtesy of extended access to Prime Brokers lines of credit which allow 3-4x gross leverage?

Comments

[Id fight Gandhi]

2/20 a waste for sub par market performance. They'll drive down stocks and short to show us how smart they are now.

[rawsienna]

Anyone with a brain will use this opportunity to sell. Volatility too high and too correlated with markets.  Why pay 2/20? Paulson is a very good/smart manager who got the big one right buy has not demonstrated any advantage vs others in managing large sums. Plus he is now in the spot light and his actions/higher profile makes me think his EGO is now inflated -not good for future returns.

My advice to his clients . Move on.

[Dollar Bill Hiccup]

Tyler,

Bob Pisani agit prop is going hook line and sinker on scape goating W&R on their ENORMOUS ES sale ...

Hey, 2 / 20 for a genius like Paulson, why not give him 3 / 30 since pension fund return assumptions are going to need the messiah himself to hit targets ...

Not a bad name for a fund come to think of it, "Messianic Investments" ...

[MrTrader]

David Tepper must have had fun with his "braniac" comments on CNBC - FED intervention will make everything go "up". Notice : buy deep OTM put options for fat tail risk protection...Hedgies will need to liquidate their bullsh1t, soon.