A chastened—and less bullish—Paulson & Co. reaped gains in most of it hedge funds, reversing its second-quarter slide along with the rest of the industry. But the New York-based hedge fund giant did so by scaling back the exuberantly bullish bets it had made on a quick economic recovery.
Paulson decreased net exposure across its hedge fund lineup. Its Recovery Fund, launched in late 2008, cut its market exposure to 107% from 140%. The firm’s other funds made slightly more muted adjustments in the same direction.
The less bullish outlook came as the broader markets soared in July, with the Standard & Poor’s 500 Index returning more than 7% on the month. None of Paulson’s funds did as well last month. The Recovery fund led the way with a 6.51% return; it is now up 9.11% on the year.
Paulson’s flagship Advantage fund returned 1.1% on the month—in line with other hedge funds—leaving it with a 4.79% year-to-date loss. The levered version of the fund, Advantage Plus, remains down 7.2% on the year. The Credit Opportunities fund rose 0.97% on the month and is up 6.49% on the year.
By contrast, Paulson’s gold fund, which had been its best performer this year, gave back more than half of those gains last month, shedding 5.93%. It remains up 5.7% on the year.
“A consequence of our portfolio positioning is higher short-term market correlation and volatility,” John Paulson told investors in a 40-page letter.