Hedge fund manager John Paulson’s gold fund has lost 65 per cent of its worth so far this year after the portfolio declined 23 per cent last month, two people familiar with the fund said.
Gold had been one of the billionaire investor’s winning bets a few years ago, but not this year. His investments in gold and gold miners have suffered double digit losses for the past three months.
In June, gold tumbled 12 per cent in the wake of fears the Federal Reserve might taper its economic stimulus by cutting monthly bond purchases. It is unclear how a 12 per cent drop in the price of the precious metal translated into a 23 per cent fall in the fund in June, and whether it is the result of the bet having been leveraged up through borrowing and the use of derivatives
A spokesman for Paulson declined to comment.
With roughly US$300 million (HK$2.3 billion) in assets, the gold fund is the smallest portfolio in his New York-based firm’s lineup with less than 2 per cent of its assets and it invests mostly Paulson’s personal money, the people familiar with the fund said.
The fund’s assets have fallen from roughly US$700 million (HK$5.4 billion) at the end of the first quarter, according to those people.
They did not want to be identified because the information is private.
The gold fund, which at one point managed almost US$1 billion (HK$7.76 billion), rose 35 per cent in 2010 and contributed to Paulson’s estimated US$5 billion (HK$38.8 billion) payday that year.
As the heavy losses made for outsized headlines in recent months, Paulson decided a few weeks ago to report the gold data only to the gold fund investors, not investors in his bigger and better performing funds. In April, Paulson garnered unwanted attention when the gold fund lost 27 per cent as the price of the metal plunged 17 per cent over two weeks.
“Paulson’s impact on the gold market is dramatic. In particular his size alone, on the way in or way out,” said John Brynjolfsson, managing director of global macro hedge fund Armored Wolf. “But one needs to look beyond his size alone because his positions are relatively widely publicised, and representative of how others are thinking, so thereby their impact gets magnified.”
The gold fund is one of a handful of funds that make up Paulson’s New York-based hedge fund, which at its peak in 2011 managed about US$38 billion (HK$294.7 billion). The firm now oversees about US$19 billion (HK$147.3 billion) in investor money.
Most of Paulson’s bigger funds are in the black this year, but the gold investments have weighed down returns of the Advantage Funds, which lost 3.06 per cent last month, shrinking the year’s gains to 1.17 per cent.
Paulson & Co’s largest holding by market value at the end of the first quarter was the SPDR Gold ETF, with 21.8 million shares, according to a regulatory filing. The firm also had large stakes in gold mining companies through March, those filings showed.
Paulson launched his gold fund in 2010, requiring outside investors to commit US$10 million (HK$77.6 million) each. He hired gold industry experts Victor Flores, HSBC’s former senior gold mining analyst, and John Reade, a former senior metals strategist at UBS. The fund is now called the PFR Gold Fund, in a nod to their last names.
Paulson’s investments in gold are one reason he rose to prominence on Wall Street.
After earning billions betting against the housing market before the financial crisis, Paulson made roughly US$5 billion (HK$38.8 billion) in 2010 thanks to prescient bets on the economic recovery and gold.
Paulson is not the only brand-name manager hit by the gold rout. David Einhorn’s Greenlight Capital Management’s offshore gold fund fell 11.8 per cent in June, bringing year-to-date losses in the fund to 20 per cent, Reuters has reported.