Trader Racks Up Second Epic Gain
January 28, 2011
Hedge-fund manager John Paulson personally generated over $ 5 billion in profits in 2010-arguably the greatest distance a year investing history, beat the 4 billion he has done with his “short” Paris against subprime in 2007.
take Paulson, described by investors and people close to the investment firm Paulson & Co., shows how the benefits continue to accrue for hedge fund managers elite. Founder David Tepper Appaloosa Management and Bridgewater Associates Chief Ray Dalio each personally made between $ 2 billion and $ 3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, has also produced a profit in this range, for example, investors in his company.
By comparison, Goldman Sachs Group Inc., an investment bank on Wall Street’s most profitable, paid all of its 36,000 employees a total of 8.35 billion dollars last year. James Gorman, CEO of 76-year-old investment bank Morgan Stanley would receive compensation of less than $ 15 million for 2010.
Mr. Paulson and his fellow managers rarely take much of their profits in cash. Part of the profit gains of paper called, reflecting the increasing value of their business operations and could affect whether these investments sour. Other gains from the sale of investments, and most of them are reinvested in their funds.
Mr. Paulson and other senior leaders made paris winners on products, companies emerging market, bank stocks and U.S. Treasury bonds, among other investments. These measures, along with peaks Profitable other funds, are part of the reason why the hedge fund industry is back on its feet after a troubled history. Assets managed by hedge funds have grown at a near-record $ 1.92 trillion, up 20% over the past year. Assets jumped by nearly $ 150 billion the fourth quarter alone, the highest quarterly growth recorded, according to Hedge Fund Research, Inc.
However, the average fund gained 10.49% last year alone, according to research firm. This is well below the 15% gain in the Standard & Poor’s 500 index, including dividends and return of 19% of the average mutual fund shares, raising questions about whether the industry can profitably invest the influx of new funds.
Indeed, the enormous profits by Mr. Paulson and other managers resulting solid but not spectacular, performance. Personal gain was partly the scale of assets under their control. The largest hedge funds in the portfolio of Paulson Investment of 36 billion dollars, Advantage Plus grew 17% last year, while another large rose 11%, falling below refers to the overall stock market.
Part of Paulson over $ 5 billion made a profit of 20% reduction in profits of his firm’s funds, known in the industry as the “performance fee.” This amounts to approximately $ 1 billion last year, according to a person familiar with the matter. An added bonus for Mr. Paulson: A piece of those profits are treated as capital gains in the long term and taxed at a rate much lower than the standard rate of tax.
More than $ 4 billion from earnings on investments in its funds Paulson.
Paulson amped up profits for himself and several of its investors a new way. He was concerned about the long-term weakness of the dollar and other major currencies, so he invented a way of taking a bet on gold in each of its funds, for investors who have opted for this approach. Mr. Paulson has put much of his own wealth in a fund denominated in gold and a separate fund of gold increased. Because gold has risen sharply in value last year, versions of its gold-denominated funds have increased by almost 45%.
The last years show, however, paled in comparison to his statements in 2007, when Mr. Paulson has made a huge bet against the subprime and its funds registered gains of up to 590%.
Last year “was not the greatest trade of all time, but to manage more than $ 30 billion still gains reach 30% is very rare in the hedge fund industry,” says Jeffrey Tarrant , who helps run Protégé Partners, a New York firm that invested in Paulson & Co. in the past.
One way to see the size of Mr. Paulson’s $ 5 billion profit: It’s almost as much as $ 6.4 billion this year Forbes magazine estimated that the final total net worth of Steven Cohen, the head is well known of $ 12 billion hedge fund firm SAC Capital. (Mr. Cohen likely added about $ 1 billion in 2010, an investor said, after gains of 16% in its flagship fund).
Appaloosa leader, Mr. Tepper, who specializes in investing in debt trouble and manages approximately $ 16 billion notched gains of about 30% by turning bullish on U.S. stocks ahead of many competitors. Tepper correctly anticipated the recent efforts of the Federal Reserve to boost the economy, measures that helped the market rally.
Mr. Dalio of Bridgewater Associates, which manages $ 86 billion in hedge funds and other vehicles, took a turn early for U.S. Treasurys, commodities and currencies in emerging markets. He correctly anticipated the Fed would flood the financial system with money to help the economy, which would increase the price of bonds and gold. Bridgewater also provides for growth in China and emerging markets, where he figured would help commodities and currencies of these countries. His hedge fund gained more than 30% last year.
Mr. Simons does not work overnight trading at Renaissance Technologies, which manages nearly $ 16 billion and specializes in lightning fast trades computer, then his wages actually declined slightly in 2010.
But Mr. Simons still owns most of the company and invests in hedge funds. Renaissance two funds available for foreign investors, the Renaissance Institutional Equities and institutional funds futures, won about 18% last year after a disappointing 2009, when the company considered close to strangers.
Renaissance Medallion fund, which is primarily intended for employees like Mr. Simons Renaissance and recorded big gains in the long, rose about 30%, according to people familiar with the matter.
The activity of hedge funds is so great that some managers suggest that they will return money to customers instead of investing it. Handling money so it can be difficult to generate significant gains in some trading strategies.
Tepper, for example, has told some investors to expect a little money in 2011. He returned $ 500 million to investors last year. This year, they may return several billion dollars, according to people familiar with the matter.
Other companies, such as Paulson & Co., have closed some funds to new investors, but are actively raising new funds to other funds. Mr. Paulson has recently organized an event in New York that included speeches by former Fed chief Alan Greenspan and several leaders of gold mining companies, aimed to stimulate interest in its holdings of gold increased.
Despite finishing touches Paulson in 2010, he may face a challenge. Gold is down over 6% so far in 2011, which means it is likely to start with losses.
