Hedge fund billionaire John Paulson lost more money in February when his gold fund suffered double-digit losses as the metal and gold mining stocks extended losses.
Paulson's three-year old Gold Fund, with roughly $800 million in assets, tumbled 18 percent last month and is now down 26 percent this year, two people familiar with the numbers said.
While the gold fund is the smallest within the New York-based firm's lineup, its heavy losses are grabbing big headlines at a time Paulson appears far more bullish on the shiny metal than many other investors.
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For months Paulson's has stuck by his biggest single investment in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, where he owned 21.8 million shares at the end of the fourth quarter. But clearly other investors became jittery in February when a 3.8 percent price drop was accompanied by an outflow of 70 tons, more than 5 percent of the ETF's holdings. This marked the biggest monthly outflow since 2004.
Analysts said they did not know who was selling but according to past regulatory filings Northern Trust Corp, JP Morgan Chase & Co and Bank of America were all large owners.
Paulson grew the firm into an industry giant by taking contrarian bets like the wager he made against the overheated housing market in 2007 that netted him roughly $4 billion. He scored more big gains on his gold investments in 2010.
Despite the sharp decline in gold prices, Paulson is sticking with his thesis that inflation will pick up at some point in the future when the metal can be a hedge.
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Paulson also owned 28.2 million shares of miner AngloGoldAshanti, 35.9 million shares of Novagold Resources and 930,502 shares of Randgold Resources at the end of the last year. Each name has suffered double-digit losses this year.
Investors have monitored Paulson's moves as a bellwether in the $2.6 trillion hedge fund industry. But for Paulson and his investors 2011 and 2012 have been characterized by heavy losses, due largely to overly confident bets on economic recovery. The firm's size shrank dramatically from $38 billion in early 2011 to roughly $18 billion now.
As the gold fund makes headlines, returns at Paulson's other funds were mixed last month. His credit, merger and recovery oriented portfolios posted small gains while his Advantage funds suffered fresh losses.
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The firm's biggest success this year has been its merger-arbitrage oriented Paulson Partners Enhanced fund, up 7.7 percent after extending January's strong gains with a 1.1 increase last month.
Paulson Credit Opportunities inched up 1.4 percent last month and is up 4.4 percent year to date. The Recovery fund is up 5.3 percent for the year after climbing 1.5 percent in February.
The Paulson Advantage Fund, which bets on big corporate events like acquisitions and bankruptcies, dipped 3.5 percent last month and is off 2.6 percent for the year.