Hedge Fund Paulson & Co's Latest Portfolio: 13F Filing ~ market folly

Thursday, December 3, 2009

Hedge Fund Paulson & Co's Latest Portfolio: 13F Filing

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is current hedge fund icon John Paulson. If you are unfamiliar with Paulson & Co, then here's what you need to know. Before the trade that made him famous in the investment world, John Paulson was a seemingly mediocre merger arbitrage fund manager. All of that changed when Paulson began shorting collateralized debt obligations and buying credit default swaps back in 2005 as he had conviction in his bet against subprime. His Credit Opportunities fund launched in 2006 with $150 million aimed to short subprime mortgage backed securities. This fund enjoyed immediate success, causing him to launch the Credit Opportunities II fund. At the end of 2007, the Opportunities fund was up 590% and his Opportunities II fund was up 353%. Such sterling performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings (top 100). Paulson's funds earned this distinction due to their solid 3 year annualized performance metrics. Additionally, Paulson sits at #3 on Alpha's hedge fund rankings list for 2009, which is compiled based on assets under management (AUM).

After massive returns on that trade he become a hedge fund and investor icon. His latest wager involves starting a brand new gold fund which we examined in-depth earlier in the week as he has turned his sights to now betting against the US dollar. In terms of notable portfolio activity in addition to what you'll find below, we saw that Paulson & Co has a large Cadbury stake (CBY) as they believe they will receive a higher takeover bid. Additionally, they've filed a 13D with the SEC in regards to their new stake in Conseco (CNO). You can see more of Paulson's insight and commentary on their portfolio in their Q3 investor letter.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Citigroup (C)
Varian (VARI)
Cemex (CX)
Starwood Hotels (HOT)
Hartford Financial Services (HIG)
Sunstone Hotel (SHO)
Starwood Property Trust (STWD)
Conseco (CNO)
Old National Bancorp (ONB)
Felcor Lodging Trust (FCH)
Ashford HOspitality Trust (AHT)

Some Increased Positions (Positions they already owned but added shares to)
First Horizon National (FHN): Increased position by 137%
Liberty Media (LMDIA): Increased by 123.8%
Pepsi Bottling Group (PBG): Increased by 19.4%
PepsiAmericas (PAS): Increased by 2.7%

Some Reduced Positions (Some positions they sold shares in)
JPMorgan Chase (JPM): Reduced position by 71.4%
Bank of America (BAC): Reduced by 4.9%

Removed Positions (Positions they sold out of completely)
Petro Canada (PCZ)
Goldman Sachs (GS)
Market Vectors Gold Miners (GDX)
Humana (HUM)
Embarq (EQ)
AT&T (T)
Data Domain (DDUP)
Centennial Comm (CYCL)
State Street (STT)
Centex (CTX)
Kimco Realty (KIM)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. Gold Trust (GLD): 15.22%
  2. Bank of America (BAC): 13.21%
  3. Wyeth (inactive): 12.27%
  4. AngloGold Ashanti (AU): 8.54%
  5. Schering Plough (inactive): 7.95%
  6. Citigroup (C): 7.1%
  7. Liberty Media (LMDIA): 6.8%
  8. Boston Scientific (BSX): 5.13%
  9. Sun Microsystems (JAVA): 3.29%
  10. Kinross Gold (KGC): 3.26%
  11. Capital One (COF): 2.97%
  12. Philip Morris International (PM): 2.14%
  13. Pepsi Bottling Group (PBG): 1.78%
  14. Gold Fields (GFI): 1.55%
  15. Mirant (MIR): 1.46%

The last time we looked at Paulson & Co's long equity portfolio, they were buying financials. This time around, they were selling a few of them as they sold some JPMorgan Chase (JPM), slightly trimmed their Bank of America (BAC) stake, and sold completely out of Goldman Sachs (GS). One financial they did add as a new position was Citigroup (C). We actually covered Paulson's rumored purchase of C earlier and so Market Folly readers knew about this back in August. Additionally, they added to their First Horizon (FHN) stake.

Hedge fund Paulson & Co's largest holding continues to be gold via GLD. Don't read too much into that because that entire position is purely a hedge for their fund share class denominated in gold. Paulson's inflationary outlook is reflected in his new gold fund, but we want to make sure everyone realizes that his GLD position is purely a hedge for a his gold share class in his other hedge fund. He is betting on inflation with his new fund via gold related equity stakes and derivatives on the price of gold.

Some other notable changes in his portfolio include new positions in Starwood Hotels and the August IPO of Starwood Property Trust. John Paulson's entrance into those as well as Ashford Hospitality Trust and Felcor Lodging Trust is interesting, although we must point out that they make up a very small portion of his portfolio. He also started a stake in Conseco (CNO) but we had already detailed this on the blog. Paulson & Co's background in merger arbitrage is evident in their positions of Wyeth and Schering Plough as those were both taken out in mergers/buyouts and are no longer actively traded.

We've assembled quite a few resources on hedge fund Paulson & Co so make sure to check out their:

- Q3 investor letter
- An in-depth look at Paulson's new gold fund
- Their recent 13D filing on Conseco (CNO)
- Paulson's stake in Cadbury (CBY)
- 2008 annual letter
- The Greatest Trade Ever by Gregory Zuckerman (WSJ Columnist): a detailed account of Paulson's winning bet against subprime that made him billions. See our review here.

Assets from the collective holdings reported to the SEC via 13F filing were $20.4 billion this quarter compared to $17.4 billion last quarter, so an increase of $3 billion. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, and David Einhorn's Greenlight Capital so check back daily as we'll be posting up a new hedge fund each morning.

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