Paulson & Co, the world’s third-largest hedge fund manager, has told clients it has made more than $1bn from its stake in Citigroup over the past 18 months and expects US growth to accelerate this year.
Citigroup was the most profitable position for Paulson’s flagship Advantage fund, which like all of the US fund manager’s funds has been highly geared to an upswing inUS economic prospects.
“Citigroup gained 43 per cent in 2010 and was our most profitable bank position,” the $36 billion hedge fund manager said in a year-end letter sent to investors this month. “In total we have achieved over $1 billion of gains in our Citigroup position since initiation in mid-2009.”
The fund declined to comment.
The letter reiterated the fund manager’s bullish position on the US economy, which many had begun to question last year as the uncertain outlook caused market volatility. Indicators have since improved, the hedge fund manager told investors, adding that all of its funds were positioned accordingly.
“We are very excited about the outlook for our funds,” Paulson said, adding that it expected them all to outperform industry benchmarks in 2011 thanks to investments in restructurings and assets at “deeply distressed prices”.
“We also believe that the US government’s recent decision to extend the Bush-era tax cuts will be an additional trigger for higher growth in 2011,” the fund manager said.
The firm said it estimated that the recent tax compromise between the Obama administration and congressional Republicans will be equivalent to a $900 billion economic stimulus over the next two years.
The fund manager also disclosed that employees now account for around 42 per cent of the firm’s assets, with around $14.9 billion invested. Founder John Paulson has reinvested all of his gains from fees “since inception”, the letter said.
The firm also dismissed concerns over its size. “We have proved our ability to perform at current asset levels,” the letter said, arguing that market opportunities are enormous and all of the funds could be much larger.
The firm’s Gold Funds, its best performing last year, contain less than $1 billion.
However, reflecting the fund manager’s longer term fears of inflation, almost a third of investors have now chosen to denominate their investment in gold, rather than the US dollar, the letter said.