John Paulson Hedge Fund Loses 20%

Billionaire hedge fund manager John Paulson is well known for his highly successful bets against mortgage backed securities and US financial institutions in 2008. But now, Paulson's $9bn Advantage Plus is down almost 20% in 2011 in part due to bad bets on US financial institutions like Citi and Bank of America.

Over the last few years, Paulson's company, Paulson & Co. has become one of the world's largest and most followed hedge funds. Paulson himself reportedly made more than $5 billion in 2010.

John Paulson Finally Bullish on Housing?

John Paulson, whose multi-billion dollar hedge fund Paulson & Co. famously profited from the meltdown in the subprime market is now bullish on the housing market. Yes, this is the same Paulson & Co. hedge fund which keeps coming up in the Goldman Sachs investigation as the hedge fund which was not revealed to other parties to be the firm shorting these CDOs.

Paulson believes housing prices will rise 3-5% in 2010 and 8-12% in 2011. Of course, given the recent price stabilization across the national markets, this is not that grandiose of a prediction. It certainly doesn't rival his brazen decision in the middle of the decade to heavily short the mortgage market while 99% of other investors were still clueless. In any case, investors might do well to listen to Paulson. He has been bullish on gold in 2010. So far gold is up about 10% so far in 2010.

John Paulson Eying a Gold Price Spike

John Paulson, the hedge fund manager who made himself famous last year with his large bet against the subprime market, is now making another bet that doesn't bode well for a quick economic recovery.

Paulson & Co.paid $1.3 billion for a stake in AngloGold Ashanti, a South African gold miner. Paulson's subprime bets returned in excess of 100% in some cases. If gold were to rise an equivalent amount, it would likely be a sign of severe economic distress.

Of course, Paulson may be like many hedge fund managers: lucky enough to hit pay-dirt once, but not good enough to do it again and again. Time will tell, but if you want to place your eggs in the same basket with a guy who pretty much nailed the first half of the crisis I can't blame you.

Paulson & Co. Short Financial Sector, Long Individual Names

Paulson & Co. the hedge fund founded by John Paulson has received plenty of attention in recent quarters as his massive short bet on subprime mortgages payed off handily. Since then, many of Paulson's funds have continued to outperform.

During Q4 2008, Paulson made a short bet on financials through SKF, a leveraged short financial ETF. However, he also increased stakes in financial firms including Merril Lynch (deal with B of A now closed), Wells Fargo, Wachovia and others.

Below are Paulson & Co.'s top holdings for Q4:

Top 20 Holdings (by % of portfolio):

1. Rohm & Haas (ROH): 18.36% of portfolio
2. Boston Scientific (BSX): 12.64% of portfolio
3. UST (UST): 11.31% of portfolio
4. Kinross Gold (KGC): 8.66% of portfolio
5. BCE (BCE): 7.7% of portfolio
6. Wachovia (WB): 7.62% of portfolio
7. Philip Morris International (PM): 6.45% of portfolio
8. Mirant (MIR): 5.72% of portfolio
9. Genentech (DNA): 4.68% of portfolio
10. Merrill Lynch (MER): 2.68% of portfolio
11. National City (NCC): 2.54% of portfolio
12. NRG Energy (NRG): 2.02% of portfolio
13. At&t (T): 1.41% of portfolio
14. Ultrashort Financials (SKF): 1.36% of portfolio
15. Embarq (EQ): 1.18% of portfolio
16. Northern Trust (NTRS): 0.79% of portfolio
17. Peoples United Financial (PBCT): 0.72% of portfolio
18. Liberty Media (LMDIA): 0.68% of portfolio
19. Centennial Communications (CYCL): 0.66% of portfolio
20. St. Jude (STJ): 0.54% of portfolio

Congress Shows Hedge Funds Some Love

The Waxman Witch Trial came to an abrupt halt as major hedge fund managers appeared before Congress. Though they were briefly asked about the systemic risks posed by hedge funds, Congressional members, Democrat and Republican, seemed to buy the argument that hedge funds pose far less systemic risk than the mainstream financial community.

Those managers present for the hearings were George Soros, Renaissance Technologies' Jim Simon, John Paulson Philip Falcone of Harbinger Capital and Ken Griffin of Citadel.

Another issue at stake was carried interest- A share of any profits that the general partners of private equity and hedge funds receive as compensation, despite not contributing any initial funds. This method of compensation seeks to motivate the general partner (fund manager) to work toward improving the fund's performance. Soros and Simons agreed that carried interest should be taxes as ordinary income, while Paulson, Falcone, and Griffin disagreed.

The hedge fund managers also supported more transparency, as long as that transparency applied only to regulators and not in " In the New York Times."

Democrat Jim Cooper noted, "The headline of this hearing is definitely Paulson vs. Paulson."

That seemed to be taking it too far for John Paulson who said, "I in no way want to be critical of Secretary Paulson," he said. "He's done a great deal for this country. He's willing to change his positions when the circumstances change."

I must say that while hedge funds are not primarily responsible for the current crisis, the sytemic risk posed by hedge funds is very real and should not be taken lightly.

Top 10 Highest Earning Hedge Fund Managers

Top 10 Highest Earning Hedge Fund Managers in 2007

1. John Paulson (Paulson & Co.)- 2007 Earnings: $3 billion
2. Philip Falcone (Harbinger Capital Partners)- 2007 Earnings:$2 billion
3. Jim Simons (Rennaissance Technologies)- 2007 Earnings: $1 billion
4. Steven Cohen (SAC Capital Partners)- 2007 Earnings: $1 billion
5. Ken Griffin (Citadel Investment Group)- 2007 Earnings: $ 1 billion
6. Chris Hohn (The Children's Investment Fund Management)- 2007 Earnings: $800 million
7.Noam Gottesman(GLG Partners)- 2007 Earnings: $700 million
8. Alan Howard (Brevan Howard Asset Management)- 2007 Earnings: $700 million
9. Pierre Lagrange (GLG Partners)- 2007 Earnings: $700 million
10. Paul Tudor Jones (Tudor Investment Corp.) $700 million