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Several Major Hedge Funds Suffer Losses

April 08, 2011 | About:
Holly LaFon

Holly LaFon

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Several major hedge funds suffered substantial losses in the first quarter of 2011, during which the Japan earthquake and tsunami occurred. The S&P 500 was down 0.1% in March, and up 5.42% in the first quarter. John Paulson

John Paulson, whose hedge fund was ranked the third largest in 2010 at $36 billion, saw losses in his firm’s largest hedge fund, the Advantage Fund, according to Reuters. It fell 1.74% over the first three months and 4.4% in March alone. During the first two weeks of March when the Japan earthquake hit, the fund was down 6.14%.

Paulson’s newest fund, Paulson’s Gold, shrank only 0.87% over the first quarter and 0.41% in March, anonymous sources told Reuters. Last year the same fund produced a gain of 35%.

Several of his other funds gained points, anonymous sources told Reuters. Paulson Partners gained 3.86%, the Paulson Enhanced gained 6.94 and the Credit Opportunities Fund gained 6.44% in the first quarter; the Recovery Fund gained 3.8 for the year.

In his 2010 shareholder letter, Paulson stated that the 2011 market was ripe for investment.

"We have spent the last year-and-half making restructuring investments in high quality assets at deeply distressed prices to maximize gains in an economic recovery. In total, we've invested over $20 billion in more than 40 different transactions. Now that these companies have repaired their capital structures, their equity offers substantial upside appreciation relative to downside risk as we move toward economic normalization. This is the part of the cycle where we want to have long event exposure and do not want to be under-invested.”

Citigroup Inc. (C) is a stock that now accounts for 6.68% of Paulson’s portfolio as of Dec. 31, 2010. When Paulson, who specializes in arbitrage strategies, purchased half a billion shares betting that the beleaguered bank would recover, he made over $1 billion. The stock increased 43% in 2010. He then sold 82,700,000 shares in the third quarter of 2010 and another 10,474,359 in the fourth quarter of 2010 as the price continued to rise. He holds 413,525,641 shares as of Dec. 31, 2010, but Citibank shares slid considerably in the first quarter, down to the $4.30-$4.50 range.

David Einhorn

David Einhorn, founder of Greenlight Capital, manages $4.94 billion in funds as of Dec. 31. Einhorn’s other company, a reinsurer whose premiums are invested primarily with him, had a 2% decline in March of 2011. Overall in the first quarter, the company’s investment portfolio was down 3.4% – its worst performance since its fall of 4.2% in 2007, according to its website.

In 2010, he posted returns of 15.9%. During the quarter, Einhorn added more Ingram Micro (IM), and Becton, Dickinson (BDX) to his portfolio.

Einhorn’s portfolio is hedged to 70%, and CIT Group Inc. (CIT) is one of his only major stocks that fell considerably – he owns approximately 7 million shares. Most of his largest long stock holdings went up in the first quarter of 2011. It is possible that he may have lost on his undisclosed short stocks.



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