John Paulson can’t stop the bleeding. Perhaps the most high-profile of the current crop of hedge fund managers last week extended his losses in the Advantage Plus fund. As of the close of last Friday, the fund was down 15.2 percent this month alone and 33.5 percent year-to-date, according to investors.
This means Paulson tacked more than 2 percentage points on to his losses last week, when the Dow Jones industrial average rose by more than 400 points on two days and lost more than 400 points on two other days.
At the moment, it is not known how his other funds fared through last Friday.
It was reported earlier that Advantage, which does not use leverage, was down about 15 percent through August 5, just before Standard & Poor’s downgraded the U.S. Treasury’s debt rating.
If Paulson is unable to reverse the losses, investors who plunked down money after 2008 will be dangerously close to losing money. At best, they will be flat.
If Paulson extends the losses by fewer than 10 percentage points, investors will have lost money since investing with him.
This assumes they chose not to opt for the gold shares of Advantage Plus (or other Paulson funds). It is not known how those shares are faring this year, but given the surge in the price of gold, you can assume they are performing much better than the regular shares.
This means Paulson — who sources say is furious that his numbers are being leaked to the press — personally is still doing pretty well and much, much better than many of his investors. He is said to have about 85 percent of his personal wealth invested in gold-related investments and share classes at Paulson & Co.
If Paulson is unable to stem the losses and in fact extends them, he could do longer-term damage to his reputation, which was established when he correctly bet that the housing credit markets were heading into the crapper and personally made $3.7 billion in 2007.
Being down 35 or 40 percent in a single year can instantly undo years of strong positive performance — unless you are David Tepper, who twice followed 25 percent declines with triple-digit gains the following year. No one else has ever done that.
Longtime luminaries like Stanley Druckenmiller, Bruce Kovner, and Paul Tudor Jones II either never suffered a down year or they lost money by single-digit percentage points during their worst years. Louis Bacon’s worst drawn down was less than 12 percent.
Paulson has been heavily hurt by a big bet on financials, including reeling banks like Bank of America Corp., as well as overall bullishness.
Interestingly, Tepper also started off the year with big bets on financials, but he was roughly flat through the end of last week, according to investors.
Even after trimming some of these holdings, at the end of the second quarter, financials accounted for more than 48 percent of Paulson’s assets and basic materials stocks an additional 17 percent, according to Securities & Exchange Commission filings.
Altogether he had nearly $26 billion in U.S. equity investments, spread over 111 issues. He took 11 new positions in the second quarter, the largest being the health care company Life Technologies Corp., followed by natural-gas company Southern Union Co. and media giant News Corp.
