Hedge fund chief Paulson loses big on gold

Tue May 7, 2013 8:08pm EDT
 
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By Katya Wachtel

NEW YORK (Reuters) - Hedge fund billionaire John Paulson is emerging as one of the biggest losers in this year's gold rout, further tarnishing his once legendary status in the $2 trillion hedge fund industry.

Paulson's $700 million gold fund lost a whopping 27 percent in April, when the price of the metal plunged 17 percent over a two-week stretch, according to performance figures provided by a person familiar with the fund.

The jarring one-month decline in the Paulson gold fund brings the year-to-date loss for the fund to about 47 percent, the source said. The fund's losses were magnified by the fact that its bullish bet on gold is effectively a leveraged bet that uses derivatives tied to the price of gold to enhance returns.

The majority of the money invested in the Paulson gold fund is believed to be the billionaire's own.

Paulson rose to fame after he made $15 billion for his firm in 2007 by betting against subprime mortgages before the housing collapse. <tinyurl.com/3vvb3p5> Since then, however, he has struggled to duplicate that success, and several of his portfolios have lagged in recent years.

Assets under management at his Paulson & Co firm have dropped to $18 billion, down from $38 billion in early 2011, due to investor redemptions and poor performance.

To be fair, the April selloff in gold was particularly fierce and came as a surprise to many hedge fund managers who were long either gold bullion or the SPDR Gold Trust (GLD.P: Quote), the most popular gold exchange-traded fund.

Hedge fund manager David Einhorn said on a conference call on Tuesday, "We were somewhat surprised by the swift decline in the price of gold in April."   Continued...