Paulson Advantage Plus Lost 52% In '11

Jan 9 2012 | 2:37pm ET

As is by now well-known, things didn't just go badly for Paulson & Co. last year, they went spectacularly badly. Now, we know just how spectacularly.

The New York-based hedge fund giant, which has enjoyed double- or triple-digit returns in each of the last four years, saw its largest fund, Advantage Plus, lose about 52% in 2011. A less-levered version of the fund, Paulson's flagship, Advantage, fell 36% during the year.

Indeed, all of Paulson's funds suffered double-digit declines last year. Its Recovery Fund was battered by the lack of a recovery, falling 28%, and its Credit Opportunities Fund, which put the firm on the map in 2007 when it more than doubled investors' money betting against subprime mortgages, lost 18%.

Even Paulson's best investment in 2011 turned against it as the year drew to a close, with gold dipping in the second half.

"Clearly, this has been an aberrational year for us," firm founder John Paulson wrote to clients. "Going forward, we remain committed to restoring all of our funds to profitability." Paulson also pledged to keep his own considerable fortune in his funds.

Paulson will have to return to his subprime mess form to make up for last year. Advantage Plus will need to return 104% before investors are made whole again—and before Paulson can begin charging incentive fees on it again. Last year's disaster wiped out three years worth of returns for Advantage Plus, leaving a client who first invested at the beginning of 2008 down 3.5% over the past four years.

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