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发帖数: 1714 | 1 Trader Racks Up a Second Epic Gain
$5 Billion Profit for John Paulson
By GREGORY ZUCKERMAN
Hedge-fund manager John Paulson personally netted more than $5 billion
in profits in 2010—likely the largest one-year haul in investing
history, trumping the nearly $4 billion he made with his "short" bets
against subprime mortgages in 2007.
Mr. Paulson's take, described by investors and people close to
investment firm Paulson & Co., shows how profits continue to pile up for
elite hedge-fund managers. Appaloosa Management founder David Tepper 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, also produced profits in that range, say investors in
his firm.
By comparison, Goldman Sachs Group Inc., Wall Street's most profitable
investment bank, paid all of its 36,000 employees a total of $8.35
billion last year. James Gorman, chief executive of 76-year-old
investment bank Morgan Stanley, is expected to receive compensation of
less than $15 million for 2010.
Mr. Paulson and his fellow managers seldom take much of their profits in
cash. Some of the profits are so-called paper gains, which reflect the
rising value of their firms' holdings, and could erode if those
investments sour. Other gains come from selling investments, and most of
those are rolled back into their funds.
Mr. Paulson and the other top managers made winning bets on commodities,
emerging-market companies, bank shares and U.S. Treasury bonds, among
other investments. These moves, along with profitable picks by other
funds, are part of the reason the hedge-fund industry is back on its
feet after a rough stretch. Assets managed by hedge funds have grown to
a near-record $1.92 trillion, up 20% over the past year. Assets jumped
almost $150 billion in the fourth quarter alone, the largest quarterly
growth on record, according to Hedge Fund Research, Inc.
Still, the average fund gained just 10.49% last year, according to the
research firm. That's well below the 15% gain of the Standard & Poor's
500 stock index, including dividends, and the 19% return of the average
stock mutual fund, raising questions about whether the industry can
profitably invest the influx of new cash.
Indeed, the enormous gains by Mr. Paulson and the other managers
resulted from solid, though not spectacular, performance. Their personal
gains came in part from the sheer scale of assets under their control.
The largest hedge fund in Mr. Paulson's $36 billion investment
portfolio, Advantage Plus, grew 17% last year, while another big one
rose 11%, falling below returns for the broader stock market.
Part of Mr. Paulson's more that $5 billion profit came from his firm's
20% cut of his funds' profits, known in the industry as the "performance
fee." Those fees amounted to roughly $1 billion last year, according to
a person familiar with the matter. An added plus for Mr. Paulson: A
chunk of those profits are treated as long-term capital gains and taxed
at a far lower rate than the standard income-tax rate.
More than $4 billion came from gains on Mr. Paulson's investments in his
funds.
Mr. Paulson amped up profits for himself and many of his investors in a
novel way. He was worried about long-term weakness of the dollar and
other major currencies, so he devised a way to embed a bet on gold into
each of his funds—for those investors who opted for that approach. Mr.
Paulson has placed the bulk of his own wealth in these gold-denominated
funds and a separate gold-focused fund. Because gold rose sharply in
value last year, the gold-denominated versions of his funds rose as much
as 45%.
The performance last year, nevertheless, paled in comparison to his 2007
returns, when Mr. Paulson made a huge wager against subprime mortgages
and his funds scored gains of as much as 590%.
Last year "wasn't the greatest trade of all time, but to manage more
than $30 billion and still have gains topping 30% is very rare in the
hedge-fund business," says Jeffrey Tarrant, who helps run Protégé
Partners, a New York firm that invested in Paulson & Co. in the past.
One way to view the size of Mr. Paulson's $5 billion profit: It is
nearly as much as the $6.4 billion that Forbes magazine last year
estimated as the total net worth of Steven Cohen, the well-known head of
$12 billion hedge-fund firm SAC Capital. (Mr. Cohen likely added about
$1 billion in 2010, one investor says, after 16% gains in his flagship
fund).
Appaloosa's chief, Mr. Tepper, who specializes in distressed-debt
investing and manages around $16 billion, notched gains of about 30% by
turning optimistic about U.S. stocks before many rivals. Mr. Tepper
correctly anticipated the Federal Reserve's recent efforts to boost the
economy, steps that have helped the market rally.
Mr. Dalio's Bridgewater Associates, which manages $86 billion in hedge
funds and other vehicles, made an early shift to U.S. Treasurys,
commodities and emerging-market currencies. He correctly anticipated
that the Fed would flood the financial system with cash to help the
economy, something that would boost bond and gold prices. Bridgewater
also anticipated growth in China and emerging markets, which it figured
would help commodities and currencies of those nations. Its hedge funds
gained more than 30% last year.
Mr. Simons no longer runs day-to-day trading at Renaissance
Technologies, which manages nearly $16 billion and specializes in
lightning-quick computer-based trades, so his pay actually dropped a bit
in 2010.
But Mr. Simons still owns the bulk of the firm and invests in its hedge
funds. Renaissance's two funds available to outside investors,
Renaissance Institutional Equities and Institutional Futures funds,
gained about 18% last year, following a disappointing 2009 when the firm
considered closing them to outsiders.
Renaissance's Medallion fund, which is primarily open to Renaissance
employees like Mr. Simons and has long recorded big gains, climbed about
30%, according to people close to the matter.
The hedge-fund business now is so big that some managers are hinting
they'll return money to clients instead of investing it. Handling so
much cash can make it hard to generate big gains in some trading
strategies.
Mr. Tepper, for example, has told some investors to expect to receive
some cash back in 2011. He returned $500 million to investors last year.
This year, he may return several billion dollars, according to people
close to the matter.
Other firms, such as Paulson & Co., have closed certain funds to new
investors, but are actively raising new money for other funds. Mr.
Paulson recently hosted a New York City event that featured speeches by
former Fed chief Alan Greenspan and several chief executives of gold
companies, aimed at boosting interest in his gold-focused fund.
Despite Mr. Paulson's winning touch in 2010, he may face a challenge.
Gold is down more than 6% so far in 2011, meaning he is likely starting
out with losses.
Write to Gregory Zuckerman a |
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