John Paulson’s 2011 Hedge Fund Performance
Despite a rather disastrous mess of 2011, Paulson has managed to keep redemptions down to just 8%.. An impressive achievement nonetheless, but is it due to belief in the strategy or belief in the brand? Either way, his performance is a good illustration of how timing can cause even the soundest convictions to run awry. Don’t forget the importance of a solid hedge when dealing with a timely trade..
The numbers are in for John Paulson’s Paulson & Co. The hedge fund finished 2011 with depressingly low returns reports the New York Times.
Paulson’s Advantage Plus fund finished the year down 52.5%, while its unleveraged Advantage fund fell 36%. Paulson’s other funds did marginally better. Its Recovery fund, which uses a macro strategy, dropped 28% in 2011. Paulson’s credit fund finished the year down 18%. The best performing hedge funds in the Paulson & Co. stable for 2011 were the Paulson Partners fund, which ended the year down 10%, and its gold fund, which lost 10.5% in 2011.Paulson’s problem was a combination of poorly timed bets, like the ones he made on Bank of America (BAC) and Hewlett-Packard (HPQ), and over exposure. After all, Paulson’s Advantage Plus was down 47% through the first nine months of the year. Paulson owned his error, telling shareholders that he made a mistake and should not have been running so exposed without the proper hedges in place – but, then, he over-corrected several positions, missing out on the October raly as a result. For instance, he reduced his position in American Capital (ACAS) the last week of September but the stock’s share price swelled 27.19% during the month of October.