Paulson's Flagship Fund Down 6% In May, Down Over 13% For The Year Following Latest Sino-Forest Debacle

Tyler Durden's picture

The halo of invincibility surrounding the world's largest hedge fund/smallest mutual fund (because last we checked a hedge fund that is $37 billion in size has about the same turn radius as Vanguard), Paulson & Co., is starting to wear thin. According to the FT's Sam Jones, Paulson's flagship fund, the $9 billion Advantage Fund, dropped "close to 6 per cent in May, echoing losses across the industry." May’s loss means that in the year to date, the $9bn Paulson & Co Advantage Plus fund is down 7.6 per cent. The average hedge fund lost 1.39 per cent over the month according to preliminary data from Hedge Fund Research, with “event-driven” strategies such as that operated by Paulson & Co’s main fund down on average 0.62 per cent.  Investors in the firm's other fund have little cause for cheer: "The Paulson & Co Gold fund dropped 6.39 per cent in May, erasing much of its 8.5 per cent April gain. The fund is up 0.9 per cent in the year. Paulson & Co is the world’s largest non-sovereign gold investor. Performance was better for the firm’s other funds. Its Credit fund was down 0.05 per cent for May, while the Recovery fund, which is geared to the prospects of the US economy, dropped 0.69 per cent. Paulson & Co declined to comment." Naturally, Paulson, who once upon a time saw Bank of America, soon to be embroiled in multi-billion dollar litigation to settle the fact that an unimaginable number of its mortgages are fraudulent through and through (thank you Agent Orange), would hit $30/share by the end of 2011 and soon will need a reverse stock split to get there, continues to be bullish: "In the firm’s most recent correspondence with investors Mr Paulson said difficulties for US banks had been a particular drag on his portfolios but that he remained optimistic...The US stock market could rally as much as 40 per cent from its first quarter level this year, he said." Sorry, John, not without QE 7 it won't.

And in the meantime, June is shaping up into another horrendous month for the once-star asset manager (or was that Paolo Pellegrini, we forget)- as we reported, Paulson has started June with a rookie $500 million loss in its Sino Forest investment: assuming the bulk of the position is allocated to the Advantage Fund, this means the the flagship fund is now down over 13% for the year.

If Paulson's LPs pull an SAC and start submitting redemption notices, in this market which already is near record margin debt, any liquidation will require indiscriminate selling of other positions to cover capital shortfall. And if bank repo desks start getting concerned about the viability of their collateral, we very well may be on the verge of another collateral-pull inspired, Lehman-type fiasco. In the meantime, our warnings that there is nothing quite as ludicrious as a $37 billion hedge fund (that 2% annual management fee could at least have purchased an analyst or two who is willing to perform due diligence on investments that are 14% of a company's outstanding shares) will hopefully finally be heard by someone.

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Atomizer's picture

The fabulous freaks are leaving town.. The Carnival Is Over.

I_ate_the_crow's picture

I can't quite be sure, but I sense I was just attacked subliminally by that video. Btw your last blog post was fantastic research.

exportbank's picture

The entire world has a Balance Sheet problem and that problem is that nobody digs into the Balance Sheet. All you need to do is promise a make-believe 8% and the entire world comes running your way. 

chrisd's picture

Paolo was the real star at that firm. Just read "The Greatest Trade Ever". JP let greed get the better of him

FoieGras's picture

The headline claims "Down Over 13% For The Year Following Latest Sino-Forest Debacle". What makes the author think the Sino Forest stake was fully allocated to Advantage Plus, which represents less than 1/3 of the firm's total assets?

Quite a broad assumption.

lizzy36's picture

I made an assumption that you passed reading comprehension at some point in middle school.

Quite a broad assumption.


Paulson has started June with a rookie $500 million loss in its Sino Forest investment: assuming the bulk of the position is allocated to the Advantage Fund, this means the the flagship fund is now down over 13% for the year.

Tyler Durden's picture

You are absolutely correct. Let's narrow the assumption. Let's say half was allocated to Advantage. The fund is thus down only 10% YTD. And some other fund is down much more proportionately.

Here's another narrow assumption: taxpayers are now paying the $400/week New York state unemployment benefits for the firm's now former China/Canada analyst.

UGrev's picture

I'm happy to have a job, but sometimes I wonder why I bother to go knowing how much of it gets ripped off the top.

Atomizer's picture

Don't quit your job/trade. The planned system is already beyond debt saturation. It cannot maintain itself any longer. Everyone knows the wink, nudge.. let's go global plan to vacuum up more ponzi money.

All disquised under cough.. sneeze, New Humanitarian laws, cough, cough.. sneeze. Pardon me.

Smiddywesson's picture

Come one TD, shouldn't the bonus coming to a failed analyst be immense and preclude the need for unemployment?  Everyone else made record bonuses from failure.

AccreditedEYE's picture

All the "great managers" of the past decade are getting pole axed. Good ol Bruce Berkowitz, last years fund manager of the year, is down a scorching -10% YTD. The Morningstar curse continues to deliver. At least he doesn't bill out at 2 and 20 for the losses he's generating.

Smiddywesson's picture

LOL, everybody, repeat after me, the rules have changed.  Go trade your fundamental or technical analysis trades, good luck!  Using indicators in this market is like fly fishing in a hurricane.  Your monkey brain seeks consistency, so we continue to do things that lose money when we should realize that what always worked in the past, doesn't work now.

Some people use indicators as a contrary indicator.  When their oscillators fail, they indicate a trend, or when their moving averages fail, it indicates mean revision.  

When all of technical analysis fails, throw the book out the window and use your brain, the worst types of trades are about to become the best trades.  I hate to say this once again, but gold was always a horrible trade.  Everybody and their brother is trying to convince you not to buy it.  They keep knocking the price down, and retail is afraid of gold.  The rules are changing.

Noah Vail's picture

The rising tide that floats all boats makes him a "star".

Mebbe in his own mind . . .

So what does the falling tide do?

Xaqaria's picture

The biggest boats are the first to run aground.

TrustWho's picture

Only Ivy League MBAers are this stupid. Stupid Asuumptions:

1) Even with fraud at all levels of the mortgage industry, home prices NEVER fall across the nation and any local price decline will have minimal impact on mortgage backed securities,

2) Any management team that does not leverage its balance sheet to the maximum, is making less money for its shareholders and should be replaced,

3) I've started, others can continue

jm's picture

4) Being lucky has nothing to do with being a superstar investor.


Tunga's picture

5) Rule of law reloaded.  


Stuff that's not s'post to happen doesn't get talked about on C-SPAN. We make the rules; you starve. Got it?


Have a nice day. :)


siamtwin's picture

JP's still rich as Croesus, so does he really care?

I am a Man I am Forty's picture

shucks, he will only get 2% of $37B or whatever the number

Chip's picture

When the redemptions hit he will have to start caring.

Georgiabelle's picture

Maybe there is a God after all.

buzzsaw99's picture

I hope he stays at the table until the entire $37B is lost.

Plainview's picture

"If anything in this life is certain, if history has taught us anything, it is that redemptions can kill anyone."


M. Corleone

Smiddywesson's picture

It has to hurt to get snookered by a phoney Chinese stock, but what do you expect when you invest in an opaque market? He should do an about face and short China like Chanos. It is a big fat pig with smeared lipstick on it.

I am a Man I am Forty's picture

i don't even mess with chinese stocks because i can't get enough information on them

Jasper M's picture

If These are the genii that are buying so much gold, then I tremble for its future. The End is only a margin call away . . .  

Barry McBear's picture

While we're on the subject of poor performance, let's look at every goldbug and silverbug's idol, Eric Sprott.  Sprott has seen his flagship fund decline 9% YTD (as of June 2).  If it can go down 9% in a year when silver's up ~17% and gold's up ~8% I wonder what will happen if there's actually a decline.  Just bafflingly poor numbers.


Spitzer's picture

That is because nobody is buying mining stocks except a few gold bugs. There is so little attention to gold and silver that it is bearly worth calling a bull market.

wombats's picture

When will the Fed launch the bailouts for the Hedge Funds?  After all, fair's fair.

ILoveTails's picture

You cats are funny...get a clue!

Paulson has been getting redemptions by outside investors for at least a year now.  Almost half of his fund is his own money (mostly) and that of his employees.  Do the math jokers, 15B.  He made that money by correctly calling the last 10 major market themes since he's been a manager.  Sure he could be the monkey that banged out the Iliad on the typewriter, but just how confident are you that this is the case?

This man has extracted more dollars from the marketplace than any other manager since inception and you're talking shit over a bad investment and a 15% drawdown?  What f-ing planet do you live on?  You tough talkers know what it's like to manage billions of dollars of other people's money?  You wouldn't dare step into the office...pussies.

I've lurked long enough...Is this what ZH has come to, a bunch of whining ignorant children?  If Paulson gets every call wrong from here on out he will still be more successful than 99% of his peers.

Show some respect where it appears to be deserved.


Tater Salad's picture


Couldn't have said it better myself!  Nice work...

Georgiabelle's picture

Respect Paulson?  Surely you jest.  Paulson was one of the biggest vultures circling overhead during The Big Short.  His relentless (naked?) shorting of wounded companies drove the stock prices down so far that they could no longer raise the capital they desperately needed to survive.  Yes, the top level executives and boards at some of those companies were morons, or even in some cases, shall we say "ethically challenged" as well, but do you have any idea how many thousands of innocent employees lost their jobs so Paulson and his ilk could add a couple zeros to the ledger?  Do you realize how many unsuspecting buy and hold type 401K investors will now have to work until they are 80 because people like Paulson don't give a damn how many people's lives they destroy, as long as they make money in the process? Hedge funds (and investment banks) make their money by screwing people and by cheating (see the NYT's DealBook section for info on the latest actions and subpoenas).  It's hardly a profession worthy of respect.  So you'll have to pardon those of us who can't help but be a bit gleeful at the thought of Paulson's current difficulties.  

Tater Salad's picture

So that puts his track record since 1997 at somewhere around 21% compounded annually, what's your track record Tyler(s)?



Tunga's picture

You; are soylent green.