Hedge fund manager, John Paulson, quickly because a household name and an idol on Wall Street, after his successful 2007 trade netted him $12 billion with bets against subprime mortgages. Many on Wall Street regard this trade as one of the greatest in history. Since then, Paulson has been a regularly followed guru hedge fund manager, as people try to see if they can catch hints on any new big trades. However, in the years since the great trade, notably, 2011-2014, Paulson has not had very good luck, as performance continues to be a major problem for his funds.
John Paulson’s Event Fund down -27%
In 2014, Paulson’s Event Fund is down -27% for the year, after a particularly rough November, according to a report from Kelly Bit of Bloomberg News. The fund has about $19 billion in assets, but saw dipped performance as investments in health care mergers, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), corporate events and credit markets soured and failed to bring capital appreciation. In fact, Paulson is having his worst year since 2011, when the event fund dove -36% on the year. John Paulson’s Advantage Plus Fund is down -14% year to date, after a particularly bad September, in which the fund fell -11%. Paulson Recovery Fund is down -6%, as well due to a lousy September performance. Paulson has also been hurt by his overexposure to gold in his Gold Fund and another asset run by his clients may be in the cards.
Electron Capital Partners' flagship Electron Global Fund returned 5.1% in the first quarter of 2021, outperforming its benchmark, the MSCI World Utilities Index by 5.2%. Q1 2021 hedge fund letters, conferences and more According to a copy of the fund's first-quarter letter to investors, the average net exposure during the quarter was 43.0%. At the Read More
John Paulson’s volatile returns
John Paulson’s fortunes seemed to be turning around last year, after his funds posted some great performance figures. Paulson’s Recovery Fund was up 63% and over 80% of the firm’s total assets were seeing appreciation. This success saw clients return and his firm was able to begin charging performance fees once again just in July 2014. However, after a really bad September, it appears to be 2011-2012 all over again for Paulson. The problem is that his returns have been so volatile, funds are losing nearly half their value in 2011-2012, then in 2013, fund performance jumps through the roof, only to crash back down in 2014. Clients will likely be hesitant with adding or keeping money in Paulson’s funds until he is able to get back on more solid footing with more reliable performance.
John Paulson’s revamped strategy
Overall, since making the “greatest trade ever” in 2007, Paulson has seen some struggles in performance and we have seen clients leave in droves before. Ultimately, can Paulson overcome the underperformance and revamp his strategy to increase returns and decrease client turnover. Paulson struggled to get his fund in Alibaba Group Holding Ltd (NYSE:BABA) when it IPO’d just a few months ago, another sore spot for clients. Overall, Paulson is down but not out and it will be interesting to see how he will try to turn his rough past four years around and start generating solid performance once again and regain trust from his clients.