John Paulson Also Is Taking a Bath on Gold Mining Stocks

Date: Thursday, June 23, 2011
Author: Gregory Zuckerman, WSJ.com

John Paulson, the prominent hedge-fund manager who scored a $5 billion payday last year, has suffered further losses in two key funds of his $38 billion Paulson & Co.

The $9 billion Advantage Plus fund has lost about 15% so far this month, through June 17, leaving it down 20.9% for the year, according to an investor briefed on the performance.

Meanwhile, Paulson’s Enhanced Partners fund, which had been on a winning streak until recently, has lost more than 8% so far this month, through June 17, leaving it up about 2% this year. Both funds lost about 1.5 percentage points in the week ending June 17.

The losses are a reversal of fortune for Paulson, who scored $20 billion in trading profits in 2007 and 2008 betting against subprime mortgages and financial shares. Even with solid but not spectacular returns of 17% in his Advantage fund last year, Paulson made $5 billion for himself for 2010 thanks to hedge-fund fees and winning bets on investments such as gold.

This year, Paulson has been whacked in part by his big slugs of financial stocks such as Citigroup and Bank of America, whose share prices are down 16.5% and 19% respectively so far this year. The hedge fund also has suffered about $500 million in losses on its investment in Chinese forestry company Sino-Forest Corp., according to people close to the matter. Sino-Forest’s stock price has tumbled about 80% since late May amid allegations of questionable accounting, which the company has denied.

On Monday, Paulson & Co. said it had sold its Sino-Forest shares “due to uncertainty” over the company’s “public disclosures and financial statements.” Paulson’s timing on the sale may not have been ideal. Sino-Forest surged 51% on Wednesday, closing at C$3 in trading on the Toronto Stock Exchange. (UPDATE: In early trading Thursday, Sino-Forest shares are down about 5.7% in a down market.)

Even one of Paulson’s recent bright spots – gold – has been stumbling lately.

Paulson has profited with a big wager on gold, and through April his gold hedge fund was up 7.7% on the year, according to an investor. Paulson has told investors that he’s put a big chunk of his own money in the gold fund, as well as in various gold classes of his existing funds.

But the gold fund tripped up in May, according to one investor, closing the month up less than 2% for the year. And so far this month, some of the firm’s large investments in stocks of gold miners, including AngloGold Ashanti Ltd. and Gold Fields, are struggling.

Paulson & Co., for example, held more than 41 million American depositary receipts of AngloGold Ashanti, a South African gold mining company, based on his most recent public disclosures as of March 31. At the beginning of May, the AngloGold investment – one of the biggest in Paulson’s portfolio – had a market value of $2.1 billion. Based on Wednesday’s closing prices, the investment has lost $317 million in value since then.