Paulson Loss From Macro Perspective

Paulson & Co.’s widely reported heavy loss in event arbitrage raises a question. Other funds with the similar strategy are as a group flat- to- profitable for the year.

The event-driven component of the Greenwich Investable Hedge Fund Index was up 2.75% as of July. A conservative version of John Paulson’s event-driven strategy went down 25% just in the past six months. How can he be so far off from his peers?

There is a noticeable common pattern in the bets Mr. Paulson made. Their success was predicated on continued recovery, including the recovery of banks and mortgage securities. Another downturn appears to have not been on the Paulson team’s horizon.

Because this was their macroeconomic outlook, it informed many trades. The positions, such as the big one in Bank of America, were overwhelmingly long. With recovery faltering, all those trades went down together.


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2 Responses to “Paulson Loss From Macro Perspective”

  1. Paulson Winning Trade Amid Losses « HedgeFundSmarts Says:

    […] this year.  Many of the losing positions were in financials, a result of  Paulson & Co.’s bullish macro gamble on a strong recovery—which of course was upset by the European debt […]

  2. Funds Sell Delphi, Price Moves « HedgeFundSmarts Says:

    […] funds had heavy losses last year. But the Delphi trade appears to be a winner. Like this:LikeBe the first to like this […]

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