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Paulson Flagship Funds Keep Losing Money in August

Tuesday, 9 Aug 2011 | 1:46 AM ET

New data obtained by CNBC shows Paulson & Co.’s flagship Paulson Advantage and Advantage Plus funds continue to see losses.

John Alfred Paulson, president of Paulson & Co., Inc.
TimSloan | AFP | Getty Images
John Alfred Paulson, president of Paulson & Co., Inc.

The $17.1 billion funds are reportedly down between 10 and 11 percent since the start of August, according to a person briefed on the performance data.

They represent almost half of Paulson’s $38.1 billion under management. Of course, that still beats the S&P 500, which has dropped 13.37 percent so far this month.

Paulson & Co. issued a clarification memorandum to investors last Friday, according to a person familiar with the matter, stating “redemptions thus far have been less than the quarterly average for the past two years.” In other words, people aren’t running for the exits yet.

A spokesman for Paulson & Co. declined to comment on the funds’ performance.

The less-leveraged Advantage fund made news last week when it was reported that it had lost 3.3 percent in July, bringing losses from January to the end of July to about 15 percent. Advantage Plus was down about 22 percent year-to-date at the end of July.

Paulson’s strategy is event-driven, meaning the funds try to invest in companies whose value could be significantly affected by a particular event such as a merger or a capital infusion. For example, Paulson bought Citigroup preferred shares just after the government’s $45 billion recapitalization in 2009. Last year this investment was the single largest gainer in the Advantage funds adding more than $1 billion in value.

Event-driven funds like Paulson’s aren’t the only ones feeling the heat. Hedge fund titan Steve Cohen’s $14 billion S.A.C. Capital Internationalfund is down 4 percent since August 1. It’s a long-short equity fund, buying some stock outright, and also taking short positions.

A spokesman for S.A.C. declined to comment.

But there seems to be no place to hide. Long-biased hedge funds have not done well in this market either. These are funds that invest a majority of their holdings in owning stock rather than in short positions.

"The funds that are getting hardest hit are the value-oriented funds with a longer-term bias, which are down between 2 and 7 percent on the month [of August] on average," says Ilana Weinstein, Founder & CEO of the IDW Group, a recruiting firm serving top-tier investment banks and hedge funds. Weinstein expects these value-oriented hedge funds to give back much of this year’s gains.

One such fund is the $4 billion Scout Capital Fund run by James Crichton and Adam Weiss. With its value-oriented strategy biased toward owning stock rather than shorting it, the fund is down some 7 percent. Its top holdings include American Tower, Chipotle and McDonald’s .

Have a hedge fund story idea? Email us at hedgestories@cnbc.com

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