Paulson’s funds plunge nearly $2bn after Allergan and Valeant bets
John Paulson’s losing bets on Allergan and Valeant have contributed to a near $2bn fall in his funds’ assets in the space of five months, taking the total amount managed by his hedge fund business to its lowest level in almost 10 years.
Paulson & Co, one of the titans of the US hedge fund industry, made billions of dollars betting against subprime mortgages ahead of the financial crisis. Its Advantage Plus fund returned 17 per cent in 2010, following gains of 21.5 per cent in 2009, 37.6 per cent in 2008 and 158.5 per cent in 2007.
But fund documents show that the company’s assets under management had fallen to $14.3bn as of March 1, down from $16.1bn in November, and from a high of $36bn back in 2011.
These numbers are unlikely to have improved since March, given sharp falls in the price of Mr Paulson’s pharmaceuticals holdings.
His funds were down about $250m after a 17 per cent plunge in Allergan shares, his largest holding, on April 5 following news that tough tax rules from the Obama administration had scuppered a takeover bid from Pfizer.
At the same time, Valeant, once favoured by Wall Street, has suffered a series of share price falls following fears over is business model and ability to repay debt. Its shares are trading at about $32.60, having stood at $262.50 in August. Paulson was the sixth-biggest shareholder as of the end of December, according to regulatory filings.
Paulson & Co’s Advantage Plus fund is down 15 per cent this year and Mr Paulson is tapping his own fortune as additional collateral for his firm’s funds as a guarantee for its credit line, according to a person familiar with the returns.
He is faring worse than most event-driven and activist funds this year as well. Hedge Fund Research’s event-driven index advanced 2.7 per cent in the first quarter, while its activist index gained 3.1 per cent.
A spokesman for Paulson & Co declined to comment.
But Mr Paulson is not alone in his woes — 2016 has been a rocky year for hedge funds, with sharp losses incurred by marquee names. Many managers trimmed their bullish bets and added short positions as markets fell in the first six weeks, only to have those short positions hurt them when the market reversed course.
“Bad things happen when you’re the least prepared for them,” Alexandra Coupe, head of asset allocation research at Pacific Alternative Asset Management Company, said of this year’s turmoil.
Part of Mr Paulson’s current strategy is focusing on specialty pharmaceutical companies that may be takeover targets.
According to a presentation that Mr Paulson was giving on April 5, the day Allergan’s share price collapsed, he was telling an audience at his prime broker JPMorgan that the stock was the one “we are most excited about”.