John Paulson's Hedge Fund Paulson & Co Covers Barclays (BCS) Short ~ market folly

Thursday, June 4, 2009

John Paulson's Hedge Fund Paulson & Co Covers Barclays (BCS) Short

Boy, how we wish there were public short disclosures in the United States. But alas, even if it would be intriguing content for the blog, we feel it would not be good for the markets. The UK has slightly different feelings as they have required disclosures regarding short positions in financials. And, purely from a blogging perspective, we welcome the news.

Straight to it: John Paulson's hedge fund Paulson & Co has essentially covered their short of Barclays (BCS). Previously, Paulson had a short position of 1.7% shares of the bank and their disclosure yesterday shows them as now having less than a 0.25% short stake. While they still hold the position, it is miniscule compared to what it once was. Marketwatch says that Paulson could have taken a $165 million loss on the position as shares have rocketed higher over the past few months. This news of course comes on the heels that Abu Dhabi's International Petroleum Investment Company was selling over 1 billion shares of BCS.

Back in February, we had noted Paulson's profits from shorting Lloyds, another UK financial. These profits came from short positions that were first revealed back in September of 2008. At that time, we learned that hedge funds Paulson & Co and John Griffin's Blue Ridge Capital had large short positions in numerous UK financials. Blue Ridge was short companies such as Alliance & Leicester and Anglo Irish Bank. Paulson, on the other hand, was short Barclays (BCS), Royal Bank of Scotland (RBS), and Lloyds (LYG). We're not quite sure who still hold what short (if at all), as we're still working our way around the UK disclosures. What we do know for sure though, is that Paulson has covered the vast majority of their Barclays short, as referenced above.

We can now add this update to the flurries of portfolio adjustments we've noted Paulson making. Most notably, he now has a large gold position (via GLD) and also has large stakes in numerous gold miners. Just 2 days ago, he filed a 13G on miner AngloGold Ashanti (AU). In another asset class, Paulson has also started a real estate recovery fund, targeting distressed assets with a multi-year investment timeframe. He's been busy to say the least.

Recently, Paulson graced Forbes' billionaire list, but that one is almost a no-brainer. After all, he did garner returns of 590% and 353% in two of his hedge funds. More notably, he was among the top 25 highest paid hedge fund managers of 2008. While Paulson's past bets have landed him great success, it seems he has taken a loss on his financial short for now. Time will tell if he will put the short back out. Considering his cautious stance on the economy near-term, we'd be inclined to think that he is merely cutting his stake while the 'bear market rally' continues to march onwards and upwards with intentions of reallocating once the euphoria dies down. (Do note that is pure speculation on our part). Check out our post on Paulson's portfolio and background for more information on America's favorite fund manager. (Also be sure to check out their year end letter & report).

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