John Paulson, the billionaire hedge-fund manager seeking to rebound from losses tied to gold and two years of wrong-way calls on the economy, posted declining returns in June as markets slumped on the Federal Reserve’s warning that it may phase out stimulus.
Gains in Paulson’s main fund strategies this year were pared last month after Chairman Ben S. Bernanke said the Fed may start reducing bond purchases that have fueled gains in financial markets globally, and end the program in 2014 should the U.S. economy recover as forecast.
Bernanke’s comments rattled investors in stocks, bonds, commodities and currencies. The MSCI World Index fell 8.4 percent from May 22, when Bernanke told Congress that the central bank could begin winding down its asset buying, to a trough on June 24. The Bank of America Merrill Lynch Global Corporate Index of bonds fell 3.9 percent in the same period.
Paulson Credit Opportunities dropped 3.7 percent last month, paring its gain for the year to 12 percent, according to a performance update sent to clients of New York-based Paulson & Co., which oversees $19 billion.
Paulson Partners Enhanced, a merger-arbitrage strategy that uses leverage to amplify returns, declined 1.2 percent for the month and is up 16 percent this year, according to the update, a copy of which was obtained by Bloomberg News. The strategy’s unlevered Paulson Partners fund decreased 0.5 percent in June and rose 8 percent in 2013.
Other hedge-fund firms, including the $15.5 billion York Capital Management LP and the $5.7 billion Jana Partners LLC, also posted losses in June. Markets recovered some losses in the last week of June and in July, with the Standard & Poor’s 500 Index up 2.8 percent since June 24 and 10-year Treasury yields coming off their recent peaks.
Gold, which has driven losses this year for Paulson in a fund that invests in the metal and related securities, dropped 12 percent in June, the most since October 2008. The firm said last month it would report returns separately in the PFR Gold Funds, which takes it name from the initials of Paulson and gold specialists Victor Flores and John Reade. The strategy, made up mostly of the fund manager’s own capital, has fallen 54 percent this year through May.
Paulson Advantage Plus, an event-driven strategy that also uses leverage and has some investments in stocks of gold producers, decreased 3.5 percent in June, leaving it with a gain of 3.4 percent in 2013. Paulson Advantage, the strategy’s unlevered fund, fell 2.6 last month and rose 2.2 percent this year.
Paulson Recovery Fund, the firm’s best-performing strategy in 2013, slumped 1.7 percent last month and rose 26 percent for the year.
Paulson, 57, made $15 billion for his investors in 2007 by betting against subprime mortgages before the housing collapse. He’s seeking to continue a rebound from money-losing bets he made in 2011 and 2012, including that the U.S. economy would pick up, the European debt crisis would worsen and that bullion and gold stocks would rise.
Paulson Advantage Plus fell 51 percent in 2011 and 19 percent in 2012. The firm’s gold strategy declined 11 percent in 2011 and 25 percent last year. The credit, merger-arbitrage and recovery strategies dropped in 2011. Firm assets peaked at $38 billion in 2011.
Armel Leslie, a spokesman for Paulson & Co. with Walek & Associates, declined to comment on the returns.
To contact the reporter on this story: Kelly Bit in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Larry Edelman at email@example.com