John Paulson and other superstar hedge fund managers can’t seem to catch a break these days. Mr. Paulson attracted a lot of attention this week when regulatory filings showed that he had ditched his entire stake in Sino-Forest Corp., taking a reported $500-million (U.S.) hit on his investment.
And that loss drew attention to the poor performance of some of his funds this year, in part because of badly timed bets on Citigroup Inc. and Bank of America Corp., both of which have fallen sharply in 2011.
The Wall Street Journal did a nice round-up of some of Mr. Paulson’s recent struggles on Thursday, noting that his Advantage Plus fund has fallen about 15 per cent so far this month, through June 17. That put the fund down nearly 21 per cent for the year, even as the S&P 500 was up 1.2 per cent in 2011, as of Thursday.
With gold – and gold stocks – down on Thursday, even Mr. Paulson’s influential bet on bullion is being called into question. One of his biggest gold-related bets is on producer AngloGold Ashanti Ltd. , whose American Depositary Receipts were down 5.4 per cent on Thursday. And let’s not forget that Mr. Paulson is the biggest investor in the SPDR Gold exchange traded fund, which tracks the price of bullion. The units were down 2.2 per cent as the price of gold fell.
The longer-term picture looks just as bleak. Mr. Paulson is also a big investor in Gold Fields Ltd. and Centerra Gold Inc. , whose shares have tumbled 24.5 per cent and 18.4 per cent, respectively, this year.
The Economist (via Abnormal Returns) gets in on the hedge-fund bashing, too, but widened its scope beyond Mr. Paulson. “The superheroes of finance seem to have lost some of their powers,” the article begins. “Several of the hedge-fund industry’s most exalted names are beset by problems more associated with mere mortals.”
Paulson made the list for his performance stumbles. But the European fund Ikos also figured highly for the marital split between its founders. So do Philip Falcone and Steve Cohen for their tangles with the Securities and Exchange Commission and resulting terrible press coverage. (Neither fund manager has been charged with any wrongdoing.)
“What can be learned from the plight of all these stars?” The Economist asks.
“One lesson is that being famous can have its disadvantages, particularly in the hedge-fund world. As Mr. Paulson can attest, it’s harder to be nimble and to maintain high standards of performance with tens of billions of dollars under management. Funds also risk attracting greater attention from regulators when they become more high-profile. Officials are clearly on the hunt for big fish.”