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John Paulson Could Have to Deal with Redemptions This Month

October 10, 2011 | About:

It is no secret that John Paulson's hedge funds have experienced severe losses in 2011. Paulson's Advantage Plus fund fell 19.4% last month and the leveraged fund is down nearly 47% on the year.

Over the next three weeks investors will have to determine whether they want to remove their money from Paulson's funds. According to the Wall Street Journal, "Investors must decide by Oct. 31 whether to ask for their money to be returned from the Advantage funds by the end of the year, investors say."

Other hedge funds are selling some of Paulson's holdings because they fear that the redemptions could cause lower prices ahead for gold and bank shares.

For example, John Paulson’s gold fund is the largest holder of the gold ETF (GDX), with over 15% of his fund devoted to GDX. Clearly, if his funds saw $1-3 billion of redemptions the price of gold might suffer in the short term.

Paulson also has a 5.8% weighting in Anglogold (NYSE:AU), which is a South African miner. Another stock that could see significant Paulson selling is Transocean (NYSE:RIG), as he has 4.8% of his portfolio in the oil driller.

Paulson is not the only hedge fund manager who made allocations to gold mining investment. David Einhorn and Jean Marie Evelliard also have over 10% of their portfolios in gold and gold related equities.

Cautious hedge funds are sitting on the sidelines in these shares waiting until November before buying. However, the remainder of 2011 could see huge stock gains as money managers have significant cash positions and will be "forced" to chase the market higher. In addition, short positions are at extreme levels.

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