Behind the Money

One-Time Hedge Fund Wiz Faces Second Abysmal Year

John Paulson
Jin Lee | Bloomberg | Getty Images

One of the hedge funds run by John Paulson, whose prescient bets against housing where chronicled in the book "The Greatest Trade Ever," is on track to be the second worst performer of 2012 among the universe of funds tracked by HSBC.

Last year, it was the worst.

Paulson's Advantage Plus fund, which uses additional leverage than his other funds, is down 19 percent through the end of October, following a 53 percent loss last year.

The fund bests just the Conquest Macro Fund, which is down 27 percent through the end of November.

The firm's other flagship fund, the Paulson Advantage Fund, is down 13 percent this year, putting it among the top 10 losing funds in the HSBC universe this year as well.

Paulson's funds are underperforming because of a bet on a Euro collapse and subsequent positions in gold and makers of the hard asset. Fast forward: the Euro is little changed on the year and one of the firm's biggest holdings, South Africa's AngloGold Ashanti (AU), touched a 52-week low last week.

"A potential collapse of the Euro triggered by a Greek default or other event could throw the world into recession and serious financial disorder," wrote Paulson in the outlook section of his 2011 year-end letter.

It's easy to pick on Paulson, whose bets against the housing market made him a multi-billionaire and were immortalized in more than one books and glowing articles, however most hedge funds are underperforming the market this year.

The Hedge Fund Composite Index from Bank of America shows hedge funds are up just 2 percent in 2012, trailing the 14 percent gain in the SPDR S&P 500 ETF Trust (SPY).

Ironically for Paulson, the best-performing hedge fund in the HSBC universe is the BTG Pactual Distressed Mortgage Fund, up almost 40 percent so far in 2012. The fund, managed by a Brazilian wealth manager, has benefited from a comeback in the very kind of residential mortgage securities that Paulson bet against during the crisis.

Among the big name winners this year is Daniel Loeb. His Third Point Ultra Fund is up 25 percent as of last week, likely because of a comeback in shares of Yahoo.

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