Thursday, November 19, 2009

Hedge fund manager John Paulson bets $1.45bn on Citigroup’s eventual recovery.

By By James Quinn, US Business Editor
Published: 12:12AM GMT 14 Nov 2009

Mr Paulson – best known for making $3.7bn from bets on the collapse of the US sub-prime mortgage market – bought the shares in the three months to the end of September, according to new regulatory filings in the US. Shares in Citigroup rose 13 cents to $4.18 in extended trading, as after-hours traders took the news as a positive sign.

At the same time, he entirely sold out of his $328m stake in Goldman Sachs, and also sold down part of the $2.2bn stake he took in Bank of America earlier in the year.

Mr Paulson, also is believed to have told investors that the new gold fund, to be run by Paulson & Co, will invest not just in gold miners but also in other investments related to the precious metal.

Although not Paulson & Co's first foray into gold, given approximately 10pc of the $30bn it has under management is in gold-related investments, it would be the firm's first pure-play gold fund.

No fund-raising cap is thought to have been set at the moment, but Mr Paulson's personal commitment is considerable and is likely to be seen as a highly attractive draw by investors.

Hedge fund investors – known as limited partners in the trade – take a great deal of comfort from managers' – known as general partners – co-investments.

Investors will inevitably question the timing of the new fund, coming at a point when gold is at an all-time high of close to $1,150 an ounce.

However, Mr Paulson is one of the most successful hedge fund managers in the US, and is known for his knack of buying assets at low prices.

As well as his sub-prime bet, he has made considerable amounts of money from betting on the financial industry and also has a recently established distressed investment fund.

Paulson & Co., Inc. had assets under management (as of June 1, 2007) of $12.5 billion (95% from institutions), which leapt to $36 billion as of November 2008. Under his direction, Paulson & Co has capitalized on the problems in the foreclosure and mortgage backed securities (MBS) markets. In 2008 he decided to start a new fund that would capitalize on Wall Street's capital problems by lending money to investment banks and other hedge funds currently feeling the pressure of the more than $345 billion of write downs resulting from under-performing assets linked to the housing market. On May 15, 2008, Paulson & Co., which bought 50 million shares of Yahoo stock during the first quarter of 2008, said it is supporting Carl Icahn on a proxy fight to replace Yahoo's board. In early 2008, the firm hired former Federal Reserve Chairman Alan Greenspan.

In September 2008, Paulson has bet against four of the five biggest British banks. His positions included a £350m bet against shares in Barclays; £292m against Royal Bank of Scotland; and £260m against Lloyds TSB. He eventually booked a profit of as much as £280m after reducing its short position in RBS in January 2009. Paulson & Co., the hedge fund run by billionaire John Paulson, may have lost out on about 218 million pounds in profit after failing to close a short position in Barclays. On August 12, 2009, Paulson purchased 2 million shares of Goldman Sachs as well as 35 million shares in Regions Financial.

John Paulson is not related to former Goldman Sachs CEO and U.S. Treasury Secretary Hank Paulson. A September 26, 2008 Wall Street Journal opinion written by John Paulson suggested an alternative to the Treasury Secretary's plan for stabilizing the markets.

Paulson is #33 on the Forbes 400 list of wealthiest Americans and is worth approximately $6.8 billion as of 2009.