Paulson Winning Trade Amid Losses

Chidem Kurdas

John Paulson’s funds are among the worst performers of 2011. Even a conservative version of his event-driven strategy lost more than 40% 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 crisis.

But not every financial trade worked against Mr. Paulson. American Capital is an interesting bet that appears to have made money. Paulson funds bought a 13% stake in the company in April 2010, at $5.06 per share.  American Capital is a publicly-traded private equity manager.

Paulson has sold most of the shares. The selling price was $10.14 in July, it declined to $6.42 in October but partially recovered last week, when the funds unloaded the shares at  $7.16 to $7.15. Today the price was below that, fluctuating around $7. So Paulson did well to sell and made money on all the sales.

What accounts for the success of this one financial trade? American Capital had a net loss of $464 million in the third quarter and its net asset value per share went down 9%. The stock remains under pressure. But Paulson bought at a low price and sold at the right times.

Was this due to strong research or was it just luck?  The jury is out.

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