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.

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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.


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