John Paulson, the hedge fund manager who skyrocketed to fame
when his big bet against the subprime mortgage market
personally netted him $3.7 billion in 2007, is now managing
just $10 billion, down 40 percent from a year ago and a far cry
from his peak of $36 billion. But rather than convert his firm
into a family office as some of his peers have done
hes trying to rebuild his firm, Paulson &
Company, in part with a spate of fund launches.
Paulson, who also scored a $4.9 billion payday in 2010 from
betting heavily on the surging price of gold, has paid a steep price in recent years for his
outsize bets on drug companies. Now, sources say, he is quietly
banking on regaining his former stature and regrowing Paulson & Co. To that end, the firm
has launched three new funds in just the past 1.5 years or so.
A spokesman for Paulson & Co. declined to
Paulson last year launched the Paulson Pure Spread Fund.
This fund draws on the managers long-term strength of playing merger
arbitrage, which traditionally calls for going long the targets
of announced deals and simultaneously shorting the would-be
acquirers as a hedge. The idea is that you make money as you
get closer to the deal closing at the agreed-upon price.
The strategy, made popular during merger mania in the 1980s,
has never been a huge moneymaker but has been treated as a less
risky, more predictable strategy. And since many deals close
within months of their announcement, arbitrageurs traditionally
calculate their gains based on the annualized return.
At the 2013 Delivering Alpha Conference, co-sponsored by
Institutional Investor and CNBC, Paulson admitted he
had grown frustrated by this strategy. He lamented that spreads
between announced deal prices and the prevailing prices had
narrowed to the 5 to 7 percent range, compared with earlier
times. It is hard to make money from the spreads,
he said at the time.
So, he told attendees, he was deploying two different
strategies. First, he was anticipating which announced deals
will get a higher competitive bid before jumping into the stock
of the target company. Second, Paulson said he would
speculatively anticipate bids for companies in what he
described as consolidating industries. In the heyday of merger
mania, this strategy was also called rumor
In any case, the new funds more traditional approach
produced a small gain last year, better than what most of his
funds could boast.
In 2016, Paulson also launched Paulson Strategic Partners
Fund. It is a longer lock-up, private equity-style vehicle
designed to invest in debt and distressed securities in the
U.S. and Europe. It wont charge fees on the assets until
it calls committed capital when it has a deal to invest in. The
firm was hoping to raise about $1.5 billion for the fund.
According to a source, the fund has so far made one investment,
In 2016, the firms existing, more liquid credit fund,
Paulson Credit Opportunities, gained 12 percent. In the first
quarter of this year it was flat. (Its other big funds
didnt fare nearly as well: Paulson Advantage lost 14
percent, Paulson Partners fell by 25 percent and Paulson
Special Situations declined by 30 percent.)
In late 2015 he trotted out the Paulson Long/Short Master
Fund. Last year it declined by around 2 percent, which was much
better than most of the firms other funds. It gained 7
percent in the first quarter of this year.