Gold’s fall costs billionaire hedge fund manager John Paulson $1.5bn this year

April 16, 2013 6:00 pm

Gold’s fall costs Paulson $1.5bn this year

By Dan McCrum in New York

The tumbling gold price has personally cost billionaire hedge fund manager John Paulson at least $1.5bn so far this year, as a decline in the price of the metal turned into a rout.

The estimated losses for Mr Paulson, who has made and lost more money on gold than almost any other hedge fund manager, reflect a bold all-in bet on the precious metal.

While many investors hold some gold in case of financial calamity or a return of the rampant inflation of the 1970s, since 2009 Mr Paulson has allowed clients of Paulson & Co to denominate their holdings in gold, rather than US dollars. Mr Paulson enthusiastically embraced the option, according to people familiar with the situation, and has about 85 per cent of his personal capital in the firm linked to the gold price.Mr Paulson controls a little over half of the approximately $18bn managed by his hedge funds, according to people familiar with the firm, so the more than 17 per cent drop in the gold price this year equates to paper losses of about $1.4bn. Gold on Tuesday rebounded $24 to $1,377 an ounce, recovering some of Monday’s steep losses.

At the same time Mr Paulson also controls about four-fifths of a dedicated gold fund, his firm’s smallest. This fund takes leveraged bets on gold. In the first three months of the year a 5 per cent decline in the gold price translated into 28 per cent losses for the fund, which managed about $700m at the end of March, according to people familiar with it.

Paulson & Co also owns a portfolio of mining stocks worth about $1.1bn. The hedge fund’s largest position is in AngloGold Ashanti, where Paulson & Co is the largest holder with a 7.35 per cent stake. Shares in the miner have dropped 41 per cent so far this year.

Mr Paulson is still ahead on his gold bet over the long term. In a statement the firm said that it had established the gold share class in April 2009 at an average cost of around $950 per ounce.

Any losses will also be offset by gains in the value of his non-gold based holdings. At the end of March, all of his funds aside from the gold fund had been in positive territory for the year in dollar terms.

Gold remains a long-term position for Mr Paulson. In 2008 he hired Alan Greenspan, former chairman of the Federal Reserve and a fellow alumnus of New York University’s Stern business school, as an adviser.

According to people familiar with the fund, Mr Greenspan argued that the huge expansion of the Fed’s balance sheet would ultimately lead to rapid growth in credit creation by the banks, sparking higher inflation.

John Reade, Paulson & Co partner and gold strategist, said: “Federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency. It is this expectation of global paper currency debasement which makes gold an attractive long-term investment.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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