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Bet on Gold Nets Paulson $5 Billion
By AZAM AHMED and JULIE CRESWELL
Published: January 28, 2011
John A. Paulson made $4 billion betting against newfangled mortgage investments. But he made even more betting on an old-fashioned investment: gold.
Mr. Paulson, a hedge fund manager who sprang to fame when the housing market collapsed, personally made about $5 billion in 2010, according to two investors in his company.
How? Mr. Paulson bought gold — lots of it. His firm, Paulson & Company, owns securities that represent the rough equivalent of 96 metric tons of the metal.
It is an outsize wager by almost any standard. Mr. Paulson’s firm does not actually own all that gold. But if it did, it would be sitting atop more gold than the Australian government. Mr. Paulson himself would be holding more gold than Bulgaria.
Mr. Paulson is known for betting big. His payday for last year exceeds the $4 billion he made for 2007. He became one of the most celebrated hedge fund managers in the business after his firm shorted subprime investments.
The 2010 income, which was first reported by The Wall Street Journal, was the culmination of a remarkable comeback for Mr. Paulson last year.
While Mr. Paulson’s firm oversees about $36 billion of assets in a range of hedge funds, the bulk of his personal fortune is invested in his funds that buy securities linked to the price of gold. Gold jumped almost 30 percent in 2010. So far this year, however, it has fallen almost 6 percent.
While some other hedge fund stars turned in strong performances last year — David Tepper of Appaloosa Management, Daniel Loeb of Third Point and William A. Ackman of Pershing Square, for instance — Mr. Paulson’s payday most likely dwarfed theirs, as he oversees funds that are substantially bigger.
Throughout much of last year, Mr. Paulson’s funds lagged the market. Amid questions about whether the funds had become too big to beat the markets or whether Mr. Paulson had lost his touch, some investors asked for their money back midyear.
But those who stayed were rewarded. In the final quarter of the year, many of Mr. Paulson’s core stock holdings rose substantially. His two largest funds, with a combined $18 billion in assets, the Advantage and Advantage Plus fund, were up 11.1 percent and 17.6 percent by the end of the year. (The difference between the two funds is that the Advantage Plus fund uses leverage, or borrowed money, to increase its returns.)
The average hedge fund gained a little more than 10.5 percent in 2010, a lukewarm year for many hedge fund managers, according to a composite index tracked by Hedge Fund Research of Chicago. Many investors would have achieved bigger gains by putting their money in an index that tracked the Standard & Poor’s 500-stock index, which was up about 15 percent last year, including dividends.
But Mr. Paulson’s personal payday was probably greater than that of many of his investors. The $5 billion he earned was almost twice the entire payroll of all Major League Baseball teams. While part of that came from his firm’s 20 percent cut of his funds’ profits — a typical “performance fee” in the industry — the bulk of his gains came from his own money he has in his funds.
Investors say Mr. Paulson has about $10 billion of his own money invested with the funds and that the vast majority of his money is invested in a special gold-share class he created a few years ago that is invested alongside his other portfolios.
So, while the Paulson Advantage fund was up 11.1 percent last year, the gold class shares of that portfolio surged 30.8 percent, according to investors in the fund, who spoke on the condition they not be named so as not to endanger their professional relationship with Mr. Paulson.
Mr. Paulson invested heavily in gold on the belief that the dollar would lose value in the coming years. His gold investments are primarily done via a gold exchange-traded fund, SPDR Gold Shares.
One of the largest E.T.F.’s in the world, SPDR Gold Shares is a trust that holds nearly 1,230 metric tons of gold bars in the vaults of HSBC bank in London.
The gold fund has attracted a lot of big investors who are looking for a hedge against inflation. George Soros and Eric Mindich of Eton Park both held substantial stakes in the gold shares trust, according to filings with the Securities and Exchange Commission.
“It’s massively popular. It’s been growing by leaps and bounds ever since the financial crisis,” said Scott Burns, director of E.T.F. research at the research firm Morningstar.
Investors in the special gold shares class do not pay an additional management fee for their stake in the gold funds, but they do give Mr. Paulson 20 percent of any profits. Only about one-third of his total investors are in the gold-shares class, many choosing instead to invest directly in the gold fund and keep all of their gains
http://www.nytimes.com/2011/01/29/bu...paulson&st=cse
By AZAM AHMED and JULIE CRESWELL
Published: January 28, 2011
John A. Paulson made $4 billion betting against newfangled mortgage investments. But he made even more betting on an old-fashioned investment: gold.
Mr. Paulson, a hedge fund manager who sprang to fame when the housing market collapsed, personally made about $5 billion in 2010, according to two investors in his company.
How? Mr. Paulson bought gold — lots of it. His firm, Paulson & Company, owns securities that represent the rough equivalent of 96 metric tons of the metal.
It is an outsize wager by almost any standard. Mr. Paulson’s firm does not actually own all that gold. But if it did, it would be sitting atop more gold than the Australian government. Mr. Paulson himself would be holding more gold than Bulgaria.
Mr. Paulson is known for betting big. His payday for last year exceeds the $4 billion he made for 2007. He became one of the most celebrated hedge fund managers in the business after his firm shorted subprime investments.
The 2010 income, which was first reported by The Wall Street Journal, was the culmination of a remarkable comeback for Mr. Paulson last year.
While Mr. Paulson’s firm oversees about $36 billion of assets in a range of hedge funds, the bulk of his personal fortune is invested in his funds that buy securities linked to the price of gold. Gold jumped almost 30 percent in 2010. So far this year, however, it has fallen almost 6 percent.
While some other hedge fund stars turned in strong performances last year — David Tepper of Appaloosa Management, Daniel Loeb of Third Point and William A. Ackman of Pershing Square, for instance — Mr. Paulson’s payday most likely dwarfed theirs, as he oversees funds that are substantially bigger.
Throughout much of last year, Mr. Paulson’s funds lagged the market. Amid questions about whether the funds had become too big to beat the markets or whether Mr. Paulson had lost his touch, some investors asked for their money back midyear.
But those who stayed were rewarded. In the final quarter of the year, many of Mr. Paulson’s core stock holdings rose substantially. His two largest funds, with a combined $18 billion in assets, the Advantage and Advantage Plus fund, were up 11.1 percent and 17.6 percent by the end of the year. (The difference between the two funds is that the Advantage Plus fund uses leverage, or borrowed money, to increase its returns.)
The average hedge fund gained a little more than 10.5 percent in 2010, a lukewarm year for many hedge fund managers, according to a composite index tracked by Hedge Fund Research of Chicago. Many investors would have achieved bigger gains by putting their money in an index that tracked the Standard & Poor’s 500-stock index, which was up about 15 percent last year, including dividends.
But Mr. Paulson’s personal payday was probably greater than that of many of his investors. The $5 billion he earned was almost twice the entire payroll of all Major League Baseball teams. While part of that came from his firm’s 20 percent cut of his funds’ profits — a typical “performance fee” in the industry — the bulk of his gains came from his own money he has in his funds.
Investors say Mr. Paulson has about $10 billion of his own money invested with the funds and that the vast majority of his money is invested in a special gold-share class he created a few years ago that is invested alongside his other portfolios.
So, while the Paulson Advantage fund was up 11.1 percent last year, the gold class shares of that portfolio surged 30.8 percent, according to investors in the fund, who spoke on the condition they not be named so as not to endanger their professional relationship with Mr. Paulson.
Mr. Paulson invested heavily in gold on the belief that the dollar would lose value in the coming years. His gold investments are primarily done via a gold exchange-traded fund, SPDR Gold Shares.
One of the largest E.T.F.’s in the world, SPDR Gold Shares is a trust that holds nearly 1,230 metric tons of gold bars in the vaults of HSBC bank in London.
The gold fund has attracted a lot of big investors who are looking for a hedge against inflation. George Soros and Eric Mindich of Eton Park both held substantial stakes in the gold shares trust, according to filings with the Securities and Exchange Commission.
“It’s massively popular. It’s been growing by leaps and bounds ever since the financial crisis,” said Scott Burns, director of E.T.F. research at the research firm Morningstar.
Investors in the special gold shares class do not pay an additional management fee for their stake in the gold funds, but they do give Mr. Paulson 20 percent of any profits. Only about one-third of his total investors are in the gold-shares class, many choosing instead to invest directly in the gold fund and keep all of their gains
http://www.nytimes.com/2011/01/29/bu...paulson&st=cse
