Paulson Jumps Back Into Mortgage-Backed Securities

Nov 18 2008 | 11:55am ET

Last year, John Paulson started cutting back on his mortgage-backed securities investments after the subprime slide had his Paulson & Co. hedge funds posting triple-digit returns. Now, he’s getting back in the game in a big way.

Paulson reduced his exposure to mortgages in expectation that the market was nearing its nadir. But with the financial crisis continuing and deepening—and with the U.S. Treasury backing away from a plan to buy the toxic mortgage securities weighing down Wall Street’s balance sheets—he has begun to buy residential mortgage-backed securities, the Financial Times reports.

Paulson reentered the market last week, he told investors, as MBS prices began to fall again in the wake of the decision by his unrelated namesake, U.S. Treasury Secretary Henry Paulson. According to the FT, he held a dinner and wine tasting at New York’s Metropolitan Club last night to reveal his plans. He has been mulling the move back into MBS for several months, it reports.

Last month, Paulson launched a new fund, the Paulson Recovery Fund, which seeks to profit from the financial tumult by taking equity stakes in financial institutions. He is also preparing a real estate fund.

Absence from the MBS market hasn’t hurt Paulson: Several of his funds are up by double-digits this year.


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