October 17, 2017

Gold Bet Turns Sour for Hedge Fund, Paulson

590 Madison Ave, formerly The IBM Building, houses John Paulson's hedge fund.

Gold was a bright spot the past year for investors as markets tumbled. Reported today in The Wall Street Journal, one gold bet turns sour for hedge fund, Paulson& Co. John Paulson, the hedge fund manager, made bullish stock bets that suffered heavy losses in August. His gold holdings kept returns relatively stable for his funds. That safety net snapped in September, with gold prices plunging. Gregory Zuckerman, who chronicled Paulson’s success betting against housing in his book, “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History”, and Steve Eder reported on the drops.

Mr. Paulson saw his fund dedicated to gold investments lose 16.4% in September, according to investors. That is worse than the 11% fall for gold prices. The Paulson gold fund now sports a gain of just over 1% in 2011, through September, compared with a 16% year-to-date gain in gold—a difference likely attributable to the fund’s investment in gold-mining companies, whose shares haven’t kept pace with gold’s rise.

Earlier this year, Paulson & Co. managed about $38 billion. But after losses and redemptions, that figure now is $30 billion.

Mr. Paulson and his executives control about half the firm’s assets. The 56-year-old Mr. Paulson gained prominence in 2007 and 2008, when his firm scored $20 billion in profits by betting against subprime mortgages and financial shares.

In 2010, thanks to an early bet on gold, Mr. Paulson racked up about $5 billion of personal gains, likely the largest one-year haul in investing history. But three quarters into 2011, Mr. Paulson’s company finds itself facing losses at a particularly tough time. Investors must decide by Oct. 31 whether to ask for their money to be returned from the Advantage funds by the end of the year, investors say.

“They have a long-term track record that we like,” Steve Yoakum, the executive director of a $30 billion public pension fund in Missouri, said in late September. “Obviously we are disappointed with the current situation, but long term, we think they are superior.”

Paulson remains bullish on the economy. There is a market sentiment to buy into gold mining companies, which have lagged behind gold’s increases. As a gold bet turns sour for hedge fund, Paulson & Co., investors would be wise to remind themselves that they’re investing for a longer time-span than traders. Day-to-day or month-to-month moves might be startling, but much like the best hedge fund managers, like Paulson, investors should remain calm and focused on their long-term strategies.

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