Paulson Comeback Reverses as Event Fund Drops 27% in Year

John Paulson’s lousy 2014 is getting worse.
The billionaire’s firm posted a 27 percent year-to-date loss in its event-driven fund after a 3.1 percent decline in November, according to two people familiar with the matter. The Paulson Recovery Fund has declined 14 percent this year and a version of the event-driven strategy that can buy new share issues such as Alibaba Group Holding Ltd. (BABA) has fallen 17 percent.
Paulson & Co. oversees about $19 billion in hedge funds that can bet on credit markets, mergers and corporate events. The firm has lost money in recent months on Fannie Mae and Freddie Mac securities and a failed health care company merger. Energy investments such as Whiting Petroleum Corp. (WLL) and Oasis Petroleum Corp. that Paulson held as of Sept. 30 have also tumbled in recent weeks as oil prices slumped.
Armel Leslie, a spokesman for New York-based Paulson & Co. with Peppercomm, declined to comment on the returns.
Paulson, 58, has experienced big wins and losses in the past few years because of concentrated bets on mergers, gold, the European debt crisis and mortgages. After starting his fund to profit on corporate mergers in 1994, he made $15 billion in 2007 by wagering against the U.S. housing market.

Photographer: Fred R. Conrad/The New York Times via Redux

John Paulson in New York in this Oct. 23, 2012 file photo.

Mixed Fortunes

The billionaire has had mixed fortunes since, with assets at the firm rising to a peak of $38 billion in 2011. That year the event fund declined 36 percent because of his bullishness on the economy that drove wrong-way bets in favor of U.S. financial companies. The following year he lost a fortune on gold and speculating against Europe before a comeback in 2013 driven by company mergers and investing in stocks.
Most of Paulson’s funds have lost money this year as the Standard & Poor’s 500 Index rallied 12 percent through November and the average hedge fund eked out a 3.7 percent gain, according to Hedge Fund Research Inc. Lackluster performance has put pressure on the industry with funds closing at the fastest pace since 2009.
Paulson & Co.’s prior success has shielded it from pressures other investment firms face after fund losses. Paulson is worth $11.2 billion, with most of that invested in the firm’s funds, according to the Bloomberg Billionaires Index.
He’s also had gains this year in other funds. Paulson & Co.’s merger-arbitrage vehicle rose 1.2 percent last month, bringing it up 1.1 percent for the year, according to one of the people. A leveraged version of the strategy climbed 3 percent in November, paring yearly declines to 0.9 percent. Assets in the merger funds comprise about half of the firm’s assets, the person said. Paulson’s credit fund gained 1.2 percent in November and fell 2.2 percent year-to-date.

Top Holdings

Paulson & Co.’s top company holdings as of Sept. 30 were Shire Plc, Extended Stay America Inc. (STAY) and Covidien Plc, according to a regulatory filing. The firm’s publicly-disclosed U.S. equity holdings were valued at $24.1 billion with about 10 percent in energy stocks.
Paulson & Co. was the largest shareholder of Whiting with a 7.9 percent stake and Oasis with 9.8 percent as of Sept. 30, according to data compiled by Bloomberg. The firm owned about 10 percent of Cobalt International Energy Inc. (CIE), as of Oct. 20, making it the second largest shareholder.
The stocks have dropped as crude fell into a bear market this year as a supply glut expanded and OPEC chose to leave its output target unchanged.