Paulson Says Europe Doomed Comeback Bid

Dec 5 2012 | 11:56am ET

Europe's failure to suffer a sufficiently dismal economic year doomed Paulson & Co. to that fate itself.

Firm founder John Paulson told clients this week that most of the firm's losses were due to its bets against Europe, notably Paulson's conviction that the continent's sovereign-debt crisis would worsen and that the euro currency would eventually collapse. But with things looking up across the pond, they are looking grim for Paulson, which is poised to suffer its second-straight year with double-digit losses. The firm's Advantage Plus Fund is down 17% this year after a 3% loss in October, and its flagship Advantage Fund is also down by double-digits.

Those funds lost 51% and 36%, respectively, last year.

At the firm's annual meeting in New York, Paulson said he had cut his bets against Europe in July, after the European Central Bank said it would do what it took to save the euro.

Paulson also announced some staff changes, telling clients that the firm had lost five investment staffers, including 12-year veteran Nikolai Petchenikov, while hiring seven. The new members of the now 52-strong investment team are Mark Gordon, formerly of Soros Fund Management; Rajeev Shah, formerly of Soundpost Partners; and Ned Dybvig, formerly of Camulos Capital Management and Soros. Gordon focuses on distressed investments, Shah on technology and Dybvig on distressed investments.

While Paulson was forced to admit that his pessimism about Europe was off, his optimism about the U.S., and in particular the housing sector, paid off. Paulson said that the firm had made money on its residential- and mortgage-backed securities investments this year, and that its $6.1 billion Credit Opportunities Fund is up 6% this year, including 3.8% in October.

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