Some Of John Paulson's Investors Are So Angry At His Gold Bets They Want Out

Closely followed hedge fund manager John Paulson, who famously bet against the subprime housing market in 2007, had a disastrous year during a volatile 2011 with some of his funds falling 30 to 50%.
This year his Advantage funds, which invest heavily in gold, are in the red again.
The New York Post's Michelle Celarier is reporting that some of Paulson's investors are so ticked off over his massive gold positions that they are considering leaving.
Here's why.
His Paulson Advantage and Paulson Advantage Plus funds ($8.5 billion AUM) have a portfolio comprised of about 25 percent in gold bets and both are down in the high single digits, according to the Post's report.
One investor told the newspaper if it weren't for the gold investments Paulson would have been up 4 percent in the first quarter.
What's more is Paulson's huge bet on South African mining company AngloGold Ashanti, which he has a 9% stake in, is down 20% this year.

John Paulson to make first Sohn conference speech

NEW YORK (MarketWatch) -- John Paulson will make his debut at the Ira Sohn Conference on Wednesday, in a rare appearance where the hedge fund manager is expected to publicly discuss his investment view and maybe even dole out a stock pick or two.

His appearance is unusual since Paulson is among a reserved group of hedge fund managers who consider their ideas a "secret sauce" that leads to huge investment earnings. It also comes after his firm Paulson & Co. suffered embarrassing setbacks last year.

The conference, started in 1995 to honor Wall Street banker Ira Sohn, has been a popular venue for savvy investment managers to share their market views and favorite stock picks. Stocks picked by managers often shoot up or plunge within minutes of their mention. The event will be held at Lincoln Center's Avery Fisher Hall in New York City.

Paulson's funds were mostly in the red last year, with one of his largest funds losing nearly 50% on an overly optimistic a view of the U.S. economic recovery. His firm also took a hit from Chinese timber company Sino-Forest Corp., which was accused last June of fraudulently exaggerating the value of its plantation assets. Paulson soon sold the whole stake at a net loss of $100 million to pacify his investors.

So far this year, Paulson--who shot to fame with a $5 billion personal windfall from shorting subprime mortgages--is having mixed results. His Paulson Enhanced fund was up 13.3% in the first quarter, but his main Advantage fund slipped 1.05% on gold's decline, Reuters reported earlier. He manages over $20 billion in assets.

Paulson has been making an effort to explain his investment decisions to investors. Last month, he started sending investors a one-page commentary accompanying the funds' monthly performance numbers.

The Queens, N.Y.-native is also increasingly visible in public.

In February, he jumped onto insurer Hartford Financial Services' HIG +0.52% quarterly-earnings conference call, telling executives they need to "do something drastic" to boost their stock price. The surprise appearance foretold his current push for Hartford to split its property-casualty arm from its life insurance unit.

Paulson's planned appearance at the Ira Sohn conference is another sign that he's trying to salvage his reputation as one of the most celebrated hedge fund managers in recent years.

Even apart from Paulson, this year's Ira Sohn lineup of 14 managers is star-studded.

Pershing Square Capital Management's Bill Ackman, who's enmeshed in a bitter proxy fight with Canadian Pacific Railway Ltd. (CP, CP.T) will attend, so will commodity hedge fund Ospraie Management's Dwight Anderson and Lone Pine Capital's Stephen Mandel.

Making a reappearance at the conference is Greenlight Capital's David Einhorn. His analysis of Lehman Brothers Holdings Inc.'s undercapitalized position in May 2008 were among a few notable events that foretold the collapse of the investment bank later that year.

The Sohn Research Conference Foundation is dedicated to the treatment and cure of pediatric cancer and related childhood diseases. Most speakers at the conference choose to donate to the cause.

John Paulson’s Recovery Fund up 9%: Top Holdings HIG, MGM

We’ve obtained John Paulson’s latest letter to investors detailing some of the positions in his funds and his outlook on future return. The Paulson Recovery Fund is a fund involved in long positions that looks to take advantage of a recovering economic environment to catch returns. The fund has had a rocky existence and reportedly lost almost 28% of its value in 2011. In the first half of 2012 the fund is finally giving returns. It returned 9.24% as of the 30th of March. We examine some of the stocks that make up the recovery fund and Paulson’s outlook for the future.
The Hartford Financial Services Group (NYSE:HIG) has been the subject of some public conflict with Paulson. Earlier in the year the firm was fighting his recommendation that they sell one of their business units involved in life insurance. The bank finally agreed in to that decision in March. That led to a significant rise in the firm’s shares in the first quarter. Paulson suggests a 30-50% upside left in the stock and gives a price target of $26-$32 per share for the company. Over all of his funds Paulson owns 8.5% of the shares in Hartford.
MGM Resorts International (NYSE:MGM) also helped drive the increase in Paulson’s recovery fund. The company’s shares rose 31% throughout the first quarter. Paulson reportedly owns around 9.5% of the Casino giant. Paulson is betting big on a rebound on gambling and it appears he has been vindicated so far. Revenue was up in Las Vegas and the company managed some operational improvements according to Paulson. He expects a continued upside from the company as gambling in the United States continues to increase revenue.
OneWest Bank, which came into existence as a recovery vehicle, is, according to Paulson, a great bet on recovery. The bank has managed an increase of tangible value of around 168% in the three years since it was instituted. The bank was formed to purchase assets from the defunct IndyMac. Paulson points to the bank’s high rate of capitalization as a plus for the company. Despite fantastic past performance the institution only managed to increase its tangible book value by 1% in the first quarter of 2012.
Having started off as a recovery bank it now has the potential to become much more than that. Paulson recommends the acquisition of whole banks as a viable route for the firm. Though it has offered great returns in the past it is slowing. OneWest needs to change its strategy in order to achieve.

What the Big Guns are Doing

Big gun investors John Paulson, Steve Cohen, Anton Schutz and Eddie Lampert all made surprising investment moves this past quarter that investors may want to take note of, according to Wall Street research shop SNL Financial.
While hedge fund manager Paulson ditched financials, we already told you that George Soros is buying them (see Emac’s Bottom Line, “Soros Dumps Google and Apple, Buys Banks”)
Add Anton Schutz's Mendon Capital to the bulls on the banks, as his shop doubled its JPMorgan (JPM: 33.53, -0.44, -1.30%) stake in the first quarter. SNL has more detail you won’t want to miss:
PAULSON CUTS BACK ON U.S. FINANCIALS
Closely watched John Paulson is the hedge fund manager famous for making smart bets against the U.S. subprime mortgages in 2007. He’s hit a rocky patch, with some of his funds dropping by a third to a half, notably due to investments in gold, which have sunk into the red.
And now his fund, Paulson & Co., has taken a big scissor to holdings of U.S.-based financial services stocks in the first quarter, says SNL.
The fund has cut its holdings in SunTrust Banks Inc. (STI: 22.66, -0.01, -0.04%), State Bank Financial Corp. (STBZ: 16.37, 0.00, 0.00%) and Capital One Financial Corp. (COF: 51.25, -0.47, -0.91%). It’s sitting pat on its holdings in Wells Fargo & Co. (WFC: 31.94, +0.14, +0.42%) and Puerto Rico-based Popular Inc. (BPOP: 1.64, +0.02, +1.23%), says SNL.
The research shop says his fund dumped out of mortgage insurer PMI Group Inc., sliced back on reinsurer XL Group Plc (XL: 20.28, -0.16, -0.78%) as well as business development company American Capital Ltd. (ACAS: 9.18, -0.01, -0.11%)
Also, SNL found that Paulson & Co. may have sold off entirely its holdings in Citigroup (C: 26.53, -0.13, -0.49%) and Bank of America. (BAC: 7.18, +0.04, +0.52%) His fund “reported holding about $643.1 million worth of Citigroup Inc. stock and $393.6 million of Bank of America Corp.'s common stock as of Sept. 30, 2011,” SNL says, but “the fund no longer had those stakes by December 2011.”
SNL adds that “Paulson & Co. has, however, held on to its Bank of America warrants, which comprise two classes; one expires in January 2019 and had a market value of $147.1 million as of March 31, while the other expires in October 2018 and had a market value of $13.7 million as of that date.”
Paulson’s fund also “has warrants on a number of other financial institutions, including Capital One and JPMorgan Chase & Co.,” it says.
Which financial name does Paulson really like? The Hartford Financial Services Group Inc. (HIG: 17.38, +0.14, +0.81%), it says, with about 37 million shares worth about $790 million as of March 31. That amounts to an 8.5% stake, which also makes him "a powerful shareholder,” SNL notes, as he has been agitating for spinoffs to pare back its balance sheet.  
And Paulson & Co. kept its 500,000 shares of Walter Energy Inc. (WLT: 50.35, +0.64, +1.29%), which has been the subject of takeover rumors and actively traded by hedge funds, SNL says. Paulson had no other coal holdings as of March 31, it adds. Unlike SAC Capital...
HEDGE FUND SAC CAPITAL JACKS UP COAL SECTOR EXPOSURE
Another closely watched, big investor is Steven Cohen, who runs SAC Capital Advisors LLC, with reported holdings of $22.4 billion.
SAC “greatly increased its holdings of coal company common stock during the first quarter, accumulating 4.5 million shares of Alpha Natural Resources Inc. (ANR: 11.18, +0.01, +0.09%), among other large stake acquisitions,” SNL says.
The move comes after SAC winnowed back its holdings in 10 publicly traded coal producers “by about half in the fourth quarter of 2011,” says SNL. But as the sector got cheaper as the market weakened, SAC jumped back in.
SAC also bought 1.8 million shares of coal and natural gas producer CONSOL Energy Inc. (CNX: 29.63, +0.06, +0.20%) and nearly 1.6 million shares of Canada's Teck Resources Ltd. (TCK: 30.30, -0.09, -0.29%), which like Alpha is a major metallurgical coal producer, SNL notes.
Moreover, SNL says SAC “was the most aggressive in accumulating stakes in coal producers” as of the quarter, based on its analysis of quarterly government filings by seven prominent hedge funds (the analysis did not factor in options held by the funds, SNL notes). The funds' holdings may also have changed significantly since the end of the first quarter.
Chicago-based Citadel Advisors LLC also joined SAC in increasing its holdings of coal company common stock during the period, notably in Alpha and Arch Coal Inc. (ACI: 7.24, -0.06, -0.82%)
Billionaire investor George Soros' hedge fund, Soros Fund Management, reported no coal company holdings in its latest Form 13F. Soros unloaded a stake in Alpha in the third quarter of 2011.
Bridgewater Associates LP, which claims to be the largest hedge fund in the world with $120 billion in global investments, also reported no coal holdings as of March 31 after liquidating one million Alpha shares in addition to stakes in coal giant Peabody Energy Corp. (BTU: 23.96, +0.10, +0.42%) and Cliffs Natural Resources Inc. (CLF: 50.41, +0.66, +1.33%), an iron ore and met coal producer.
Greenwich, Conn.-based Tudor Investment Corp. liquidated its Alpha stake during the first quarter, but took a new 12,700-share position in Patriot Coal Corp. (PCX: 2.46, +0.04, +1.65%), which has recently seen its shares tank after news of a potential default by a key customer.
EDDIE LAMPERT REDUCES STAKE IN CIT BY 87%
Hedge fund manager and Sears Holdings Corp. (SHLD: 56.80, +0.21, +0.37%) chairman Eddie Lampert hasn’t been doing so great overseeing the turnaround of the Sears department stores, which merged with Kmart.
His fund chopped its holdings in financial institutions in the first quarter of 2012, SNL says, citing data from RBS Partners and ESL Investments Inc. shows.
Lampert dramatically cut his stake in CIT Group Inc. (CIT: 34.83, -0.33, -0.94%) by 87.1% from the prior quarter, and slashed his holdings in iStar Financial Inc. by 46.2%, SNL says. This struggling mortgage REIT had a big “short interest as a percent of shares outstanding of 20.4%,” as of April 30, SNL notes.
And Lampert cut his holdings of Capital One Financial by 12.1%, leaving a $249.7 million stake in the bank, SNL says.
Lampert’s fund also sat tight on its stake in Genworth Financial Inc. (GNW: 5.23, -0.02, -0.38%), its largest stake as a percent of shares outstanding at nearly 2%.
Lampert’s fund also cut stakes in the auto retailer AutoNation Inc. (AN: 36.28, +0.40, +1.11%) and auto parts retailer AutoZone Inc. (AZO: 374.74, +5.34, +1.45%). Based on data from RBS Partners, Lampert’s fund “also reported an approximately 67% reduced stake in the shares of discount retailer Big Lots (BIG: 37.63, +1.88, +5.26%) and a little more than 1% reduction in the shares of Gap Inc.” (GPS: 27.23, +0.24, +0.89%)

John Paulson: Laying a golden egg

Investors with legendary hedge-fund manager John Paulson aren’t taking a shine to his gold metal performance — in fact, some are heading for the exits.
Investors are upset over Paulson’s huge gold positions — specifically, his outsize holding of AngloGold Ashanti, down 20 percent this year, The Post has learned.
That has dragged down two of Paulson’s funds.
“I would be happier if he cut the gold position in half,” says one investor who put in a notice to take his money out of the fund in June. “He would have been up 4 percent in the first quarter if it weren’t for the goddamned gold.”

Instead, Paulson’s gold-heavy funds — Paulson Advantage and Paulson Advantage Plus — are down in the high single digits.
Gold bets account for 25 percent of the portfolio in Paulson’s Advantage funds, which are in the red again this year — after tanking in 2011. The concentration is even worrying some Paulson insiders, a source told The Post.
The two funds manage about $8.5 billion, or one-third of the firm’s capital. About half of the firm’s capital is from outside investors.
Paulson made the history books with his 2007 subprime short that turned him into an overnight sensation. Investors in his funds were amply rewarded — and the hoi polloi jumped aboard.
Last year’s gut-wrenching losses tested their resolve but by and large, these investors stuck with Paulson.
Through the first quarter, Paulson has told investors that redemptions were just 2 percent of the firm’s $24 billion of capital. The same amount is expected to come out this quarter, says a source close to the firm.
But industry insiders reckon that Paulson’s inability to turn these two funds around this year could lead many more investors to throw in the towel. One more problem: a reliance on bank platforms.
After his fame rose, Paulson began raising billions of dollars through bank hedge-fund platforms, which allow individuals to avoid the $10 million minimum investment to get into a Paulson fund.
This money could become a problem. Two of these banks — Morgan Stanley and Citibank — have put Paulson on a “watch” list, which means they won’t add any new money for three months. The two have about $500 million invested in Paulson.
One of Citi’s investors has sued Paulson in a Florida court over last year’s losses.
Both banks declined to comment, as did Paulson.
A source close to the firm acknowledges that about 20 percent of Paulson investors are still underwater. Most are in the Advantage funds.
The 56-year-old investor became enchanted with gold — including gold mining stocks and the SPDR Gold trust — after the financial crisis as he became worried about inflation caused by government bailouts.
Paulson’s gold stakes include AngloGold Ashanti, a South African mining company, where his 9 percent stake has long been the biggest single investment. The company accounts for 13 percent of Paulson Advantage’s long positions — huge for a hedge fund.
Investors think Paulson is doubling down on gold in an effort to revive his reputation.

John Paulson's continuing love for one particular shiny object has some of his investors fuming.
Paulson & Co.'s flagship hedge funds have about a quarter of their assets invested in gold and gold-related investments. But those bets aren't paying off, and some investors are lashing out, or pulling out.

The New York-based firm has said that redemptions remain low despite its main funds' dismal performance both this year and last, when they lost between 30% and 50%. Paulson said that net redemptions totaled just 2% of assets in the first quarter, with a similar withdrawal level expected this quarter.

But the New York Post reports that some investors are getting restless, and blaming the hedge fund founder's taste for gold for their troubles. According to the Post, some investors think Paulson's strong backing for gold is an attempt to revive his reputation after last year's disaster.

"I would be happier if he cut the gold position in half," one redeeming investor told the tabloid. "He would have been up 4% in the first quarter if it weren't for the goddamned gold."

Paulson's Advantage Fund is down 6% through April, while the more highly-levered Advantage Plus Fund is down 8.8%.