After a rough 2011 for his hedge fund, John Paulson got some good news on Wednesday. As the largest shareholder in the Hartford Financial Services (NYSE:HIG), the company bowed to investor pressure, driven by John Paulson, and announced that it would leave the annuity business and explore a possible large sale of its life insurance business.
The news came in a press release by the insurer. Liam E. McGee, Hartford’s chairman and chief executive, said on Wednesday,
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
“The Hartford’s sharper focus will lead to an organization that, over time, will be positioned for higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital and increased financial flexibility. With this portfolio and the actions we are taking, we are on the right path to unlock value and deliver superior, long-term returns for shareholders.”
The company also said they will discontinue selling new annuities in April and state a $15 million to $20 million charge in the second quarter. These changes will drop Hartford’s annual run-rate operating expenses by approximately $100 million, starting in 2013, according to The New York Times.
Change for the company comes as Paulson used Hartford’s February 8 quarterly earnings call to urge management to “do something drastic” to increase its stock price, reported The Wall Street Journal. In the call, McGee reacted by saying Paulson’s “sense of urgency about realizing greater value for shareholders is shared by me and this team.”
One month later, Paulson gave some specifics on Hartford’s future direction with a presentation to the Securities and Exchange Commission. He noted that by getting rid of the property and casualty business, shareholder value would rise 60 percent.
His actions show a rare slice of investor involvement asking for change. His motives most likely come from his desire to recover some of his Paulson & Co. fund’s 2011 losses. The hedge fund owns 37,540,676 shares or approximately 8.5 percent of Hartford’s stock.
Paulson started his own hedge fund back in 1994 finding success from his investments against subprime mortgages during the financial crisis. For his company, Paulson& Co., he saw $20 billion in profits during 2007 and 2008.
He then found success on bullish bets on stock and gold with his 2010’s profits rising to $5 billion after a successful September. He also profited from commodity investments, emerging markets, bank stocks and U.S. Treasury bonds.
Then, things began to go south for Paulson.
One of his biggest hedge funds dropped around 50 percent after his speculation on an improving U.S. economy didn’t go well in 2011. Another thorn in his side has been a February lawsuit against his firm for its poor investment in Sino-Forest Corp. The company has been under investigation for possible fraud.
A firm spokesman said the suit, “With x, as with all our investments, we are highly confident in our initial and ongoing due diligence.”
Currently, his firm has $24 billion in assets, a decline from the $38 billion during 2011.