Paulson Flagship Fund Hit Hard by Market Rout

Hedge-fund titan John Paulson’s summer swoon continued last week, rendering his Advantage Plus Fund down more than 31 percent through Friday’s market close, according to people who have been briefed on the results.

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

Advantage Plus is the levered version of Paulson’s flagship fund, Advantage, which was down roughly 21 percent through Friday, according to these people.

Those performance figures were shared with Paulson investors late Tuesday and early Wednesday, say the people briefed on the results, and do not reflect themarket rout on Monday that almost certainly sunk the two funds even further.

The size of the hit Paulson likely took on Monday may be difficult to determine, given that the fund company tends to communicate results to investors on a weekly basis, usually through the prior Friday.

A spokesman for Paulson did not immediately return calls for comment.

With about $35 billion under management, Paulson & Co., which underwent rocket like growth during the financial crisis thanks to a winning bet that securities backed by subprime mortgages would fall, is one of the largest hedge funds in the world. Some critics believe that despite the company’s phenomenal success, it may now be too big and unwieldy to maintain its hot streak.

Indeed, one of Paulson’s core convictions is now being challenged. For the last several years, the firm’s founder has embraced a bullish thesis that the U.S. economy would rally, and that bank stocks like Bank of America and Citigroup would benefit as a result.

But the setbacks of recent weeks have clobbered many financial stocks, and a host of other issues, including lingering mortgage liabilities at Bank of America, JPMorgan, and others, continue to pose concerns.

Late in July, CNBC reported that Paulson had sold off a substantial portion of its Bank of America position in May and June, fearing, among other things, that losses from litigation related to soured mortgage investments would drag the company’s shares down.

While that paring may have stanched the losses that would have resulted from exposure to BofA, which has been hit hard so far this week, Paulson remains invested in a number of other banks and financials, according to people familiar with his book.

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