There are not many investment options that can deliver strong positive returns in the current turbulent market environment, but US hedge fund manager John Paulson has managed to do that - and in style.
According to Bloomberg, Paulson & Co's funds generated profits of more than USD3bn for the firm last year, mostly by betting that the housing bubble would burst. As the year ended, Paulson set his analysts to focus on banks with lots of mortgages. 'After those companies fell, we expanded our focus not just to mortgage assets, but to all credit classes,' he said.
Now four of Paulson's funds are among the 20 best-performing and most profitable hedge funds over the first nine months of 2008, with gains ranging from 15 to nearly 25 per cent, Bloomberg reports. Based on returns up to September 30, Paulson & Co is on track to generate USD1.05bn in profit this year.
However, few of Paulson's peers have emulated his performance during a dismal year for most hedge fund managers. Up to the end of September, the average fund lost 10.8 per cent, according to Hedge Fund Research, followed by a further 6.3 per cent decline in October. HFR says hedge fund closures at mid-year were 15 per cent ahead of 2007.
Even Paulson says he's at a loss to explain why other hedge fund managers have fared so poorly this year. In the coming months, we'll see whether his competitors have learned the lesson of the past two years and can give him a run for his money.