Can't get no satisfaction

9 September 2010 By Christopher Swann

Any hint of negative numbers, and hedge fund watchers wonder if he has lost his touch. He deserves the benefit of the doubt. But it’s almost unavoidable that his stellar record will be cut down to size. His firm’s $30 bln scale and directionless markets make it hard to shine.

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Hedge fund manager John Paulson, famed for a bet against the U.S. mortgage market that netted his funds $15 billion in profit, has seen his $9 billion Advantage Plus Fund lose 11 percent in the first eight months of this year.

Paulson & Co's flagship fund dropped more than 4 percent in August alone as bets on an improving U.S. economy suffered with unexpectedly weak data. The lessleveraged Advantage Fund is down 7 percent so far this year.

Last year, the Advantage Plus Fund returned 21 percent and Paulson's smaller Recovery Fund made 25 percent. But investments in U.S. bank shares, among others, have recently lagged amid concerns over the pace of recovery in the United States.

Paulson's Gold Fund rose 9 percent in August and is up 15 percent for the year, while the firm's funds specializing in merger arbitrage, credit and recovery investments are flat or up so far in 2010.

Investors hold a third of Paulson's funds through interests denominated in gold, meaning returns on the underlying dollardenominated funds are enhanced if gold prices rise in dollar terms and reduced if they fall. Because of the rise in gold prices, the gold shares are up so far this year for all Paulson's funds.

The average hedge fund gained 0.2 percent in August and 2.5 percent in the first eight months of 2010, according to early estimates by the compilers of the Dow Jones Credit Suisse Hedge Fund Index.

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