John Paulson Bids Good Riddance to Summer

Photo
John A. Paulson's hedge fund struggled in July and August.Credit Jason Szenes/European Pressphoto Agency

The hedge fund magnate John A. Paulson seemed to be enjoying himself at the United States Open on Wednesday night, watching Novak Djokovic defeat Andy Murray.

But over all, this summer has not been kind to Mr. Paulson. In July, his $23 billion Paulson & Company suffered across-the-board losses. August was marginally better, according to the latest numbers, disclosed in a monthly update letter sent to investors on Friday.

Mr. Paulson’s Advantage and Advantage Plus funds were down 1.5 percent and 1.2 percent during August, bringing losses to 4.8 percent and 3.9 percent so far this year, according to the update. Among the worst-hit sectors for the firm were hotels, telecommunications and energy.

Meanwhile, his Recovery fund, which made nearly $1 billion through its stake in OneWest Bank after the CIT Group bought it in July, managed to claw back marginally from a 4.9 percent loss in July to bring its losses to 1.6 percent this year.

Mr. Paulson’s largest fund, called the Credit fund, gained 0.5 percent in August. The Enhanced fund was flat but still remains up 8.9 percent so far this year.

Mr. Paulson made a name for himself after he reaped billions of dollars betting on the housing crash during the financial crisis. Since then, his firm has focused on placing bets on the mergers and acquisitions boom taking place on Wall Street.

The hedge fund has been the center of a flurry of activity this year, with holdings in companies on both sides of many of the year’s most prominent deals.

But two of the year’s biggest deals fell through in August. Sprint’s attempted takeover of T-Mobile and Rupert Murdoch’s bid for Time Warner were both abandoned in one torrid week. Since then, Mr. Paulson’s holdings in Sprint, T-Mobile and Time Warner have suffered losses.

Meanwhile, the momentum behind so-called inversion deals — in which United States companies acquire a foreign company and reincorporate overseas to pay lower taxes — is under threat amid a broader political backlash in Washington.

In July, the pharmaceutical company AbbVie closed a $54 billion deal with its European rival Shire, drawing regulatory scrutiny to such deals. Mr. Paulson holds a 4.5 percent stake in Shire and holds stakes in companies that are considering inversions.

Mr. Paulson may hope for better prospects in the last months of this year. Since the second quarter, his firm has added positions in Covidien and DirecTV, which Mr. Paulson told an audience at a Manhattan hedge fund conference in July were “attractive”.

While the investor letter did not point to specific stocks that hurt the firm’s performance, two of its largest holdings — the casino and hotel chain Caesars Entertainment and the hotel chain Extended Stay America — have not performed well recently. Mr. Paulson has a 9.5 percent stake in Caesars and a 23.3 percent stake in Extended Stay.

Since the second quarter, Mr. Paulson has reduced his stake in Caesars, which has been weighed down by $25 billion of debt and is locked in a litigious battle with bondholders seeking to extract their money from the company. He also sold shares in Extended Stay America, which Mr. Paulson helped to buy out of bankruptcy together with Centerbridge and Blackstone in 2010 for $3.9 billion.

A spokesman for Paulson & Company declined to comment.