John Paulson: a one-hit wonder or a hedge fund god?

The story of John Paulson is absolutely fascinating, the stuff dreams are made of. In less than 5 years, the guy goes from being a mediocre merger arb guy to a personal net worth of $16 BILLION. To put that in perspective, Paulson accumulated more wealth since 2006 than Soros had in his entire 40+ year career. HIs fund now has $30+ billion AUM and is the envy of the hedge fund world. Every finance student at HBS and Wharton would cut off their balls to work there.

Having said that, a lot of people are skeptical about Paulson's actual raw talent. Multiple people I've talked to, whose views I respect, think that Paulson is a one-hit wonder, who just had the balls to capitalize on Paollo Pellegrini's research and bought CDS on subprime at the right time. They argue that buying battered financial stocks in 2009 or gold in 2010 were obvious trades and did not require special talent. Since Paulson already had a lot of money by then, he was able to accumulate large positions in those trades (he's probably the biggest holder of the gold etf, GLD) and reap enormous profits. Now, Paulson's advantage fund is down 20.9% this year; they got burned by not just sino forest but also gold mining stocks like Anglogold.

Here's a summary of his latest conference call with investors: http://www.businessinsider.com/john-paulson-is-sh…

So is Paulson's streak over? Will he recover, or is he the hedge fund world equivalent of a one-hit wonder?

 

Somewhere in between. He's probably made the bulk of his fortune for this lifetime, but he wasn't exactly in the poor house before this whole "subprime" ordeal. You need money to make money, if im not mistaken he was already a billionaire

 

He wasn't a billionaire before 2007. I've read some of his articles before his subprime coup and he seemed to have a solid process in place. In fact, he was one of the better pure merger arb guys out there. The optionality on his subprime trade was phenomenal and if there's one thing to learn from Paulson, it's that if you don't know how to access a trade, figure it out. A lot of people thought housing was overvalued, very few figured out the best way to short it.

It does seem, however, that his last two years have depended solely on being right, something which is impossible to keep up for too long without blowing up.

 

Not so sure about Paulson making more than Soros in his whole career...Any person who reads about Soros will tell you that if he hadn't given so much money away he would be in the same region as Buffett. He has supposedly given away around 50% of the money he made...if you assume he didn't give it away (which he did from the day he broke the pound) that would've grown to a Buffett type bank balance- extrapolating for his fund growth rates.

Read any of his biographies.

 
MScFinancialMathematics:
Not so sure about Paulson making more than Soros in his whole career...Any person who reads about Soros will tell you that if he hadn't given so much money away he would be in the same region as Buffett. He has supposedly given away around 50% of the money he made...if you assume he didn't give it away (which he did from the day he broke the pound) that would've grown to a Buffett type bank balance- extrapolating for his fund growth rates.

Read any of his biographies.

By the same token, he would have to put double the money to work...probably would diminish his returns

 

I believe that the median house price in detroit is 13500. We could literally pool money together on wso and buy a shitload of property there. Too bad they don't have any supermarkets within city limits

looking for that pick-me-up to power through an all-nighter?
 
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
I believe that the median house price in detroit is 13500. We could literally pool money together on wso and buy a shitload of property there. Too bad they don't have any supermarkets within city limits

However they do have plenty of crack dealers, casinos and jobless/homeless. I was in detroit in december and I remember how many bums talked to me. My fav was this one we called superman, because he was wearing a superman shirt and a cape, yes a cape and he was walking around with a bottle of windex(which probably doubled as an inhalant/tool of the trade).It was like 5 degrees outside.

The only good thing to ever come out of detroit is house music.

 
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
I believe that the median house price in detroit is 13500. We could literally pool money together on wso and buy a shitload of property there. Too bad they don't have any supermarkets within city limits
If it could be well rented I´m in with 2k in October XD.
Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!
 

If I understand correctly, the guy within paulsons fund that came up with the "big short" left his fund, started his own, and closed up shop in less than 8 months. I think the real test of a money manager isn't one or even three years, but 8-10-12.

He may have become richer than Soros in 5 years or so, but let's see if he can maintain it in another 10.

 
Nyctola:
If I understand correctly, the guy within paulsons fund that came up with the "big short" left his fund, started his own, and closed up shop in less than 8 months. I think the real test of a money manager isn't one or even three years, but 8-10-12.

He may have become richer than Soros in 5 years or so, but let's see if he can maintain it in another 10.

You´re clearly uninformed, Paolo Pellegrini did not close his fund. He returned money to Investors to trade with his own capital, BNY-WM and GS invest both $200 million in his new fund.

Paolo Pellegrini is a brilliant mathematician and you should not underestimate him. I´m sure you´ll hear from this guy.

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

Isn't 16 billion enough? It might sound stupid because I've never thought of "having a number" before I retire but imagine how hard it honestly would be to spend a billion dollars. Let alone 16 if he just cashed out.

 
khatar:
Isn't 16 billion enough? It might sound stupid because I've never thought of "having a number" before I retire but imagine how hard it honestly would be to spend a billion dollars. Let alone 16 if he just cashed out.

I would definitely retire and live a ridiculously ostentatious party-filled lifestyle (I would make Charlie Sheen look like a nun). Assuming 5% in interest, that's $800 million a year. Lol you can burn $800 mil a year and not even eat into the principal! That's $2.2 million dollars a day (in INTEREST). $138K for each waking hour...lol I don't even know how I would begin trying to spend $138K an hour...

 
alexpasch:
khatar:
Isn't 16 billion enough? It might sound stupid because I've never thought of "having a number" before I retire but imagine how hard it honestly would be to spend a billion dollars. Let alone 16 if he just cashed out.

I would definitely retire and live a ridiculously ostentatious party-filled lifestyle (I would make Charlie Sheen look like a nun). Assuming 5% in interest, that's $800 million a year. Lol you can burn $800 mil a year and not even eat into the principal! That's $2.2 million dollars a day (in INTEREST). $138K for each waking hour...lol I don't even know how I would begin trying to spend $138K an hour...

Exactly my point. Just park that in some high yield corporate bond and hold until maturity for 30 years. Fuck all the rate changes. That's IMO but who knows. I guess it's "note about the money, more about the game."

 

John Paulson was never a genius

Subrime bet 2007 (Mastermind: Paolo Pellegrini, Paulson said: Do it, Paolo) Bank shares 2008 (Mastermind: Analyst) $5 billion income 2010 (He had up to $6 billion own cash in his funds)

Wait for someone who reaches over +1000% in 3 year and you can call him a "Hedge Fund God"

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 
Walkerr:
RexAlpha:

Wait for someone who reaches over +1000% in 3 year and you can call him a "Hedge Fund God"

So, who do you guys think it;s gonna be?? Ackman, Einhorn, Paulson, Soros...??

That's ridiculous...you'd have to find a ridiculously mispriced asset with optionality, and pour your entire fund into it....Paulson and CDS is about as close as you can get to that...

 
RexAlpha:
John Paulson was never a genius

Subrime bet 2007 (Mastermind: Paolo Pellegrini, Paulson said: Do it, Paolo) Bank shares 2008 (Mastermind: Analyst) $5 billion income 2010 (He had up to $6 billion own cash in his funds)

Wait for someone who reaches over +1000% in 3 year and you can call him a "Hedge Fund God"

well alot of hf managers source their ideas from their analysts, thats kinda the point of the analyst.

if you actually take returns of the likes of buffet and soros and look at t statistics youll see that even they are not proven positive returns beyond reasonable doubt.

 
leveredarb:
RexAlpha:
John Paulson was never a genius

Subrime bet 2007 (Mastermind: Paolo Pellegrini, Paulson said: Do it, Paolo) Bank shares 2008 (Mastermind: Analyst) $5 billion income 2010 (He had up to $6 billion own cash in his funds)

Wait for someone who reaches over +1000% in 3 year and you can call him a "Hedge Fund God"

well alot of hf managers source their ideas from their analysts, thats kinda the point of the analyst.

if you actually take returns of the likes of buffet and soros and look at t statistics youll see that even they are not proven positive returns beyond reasonable doubt.

Actually, I believe the t statistics have proven that Soros' outperformance is statistically significant whereas Buffett's isn't.

 

I think Paulson is probably case example of having scalability issues and getting away from core strengths. Simply put he grew too big too fast after crushing it with CDS which attracted a flock of investors. Gotta put that money to work but in what. 30 billion is A LOT to put to work... That is beyond super gigantic in the merger arb market. Credit opportunities fund the real opportunities are going to come and go. I am looking over the holdings and i have no idea how you call any of these event driven. Couple spec holdings in there but nothing too crazy. He is very concentrated given the size of the portfolio.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
trade4size:
I think Paulson is probably case example of having scalability issues and getting away from core strengths. Simply put he grew too big too fast after crushing it with CDS which attracted a flock of investors. Gotta put that money to work but in what. 30 billion is A LOT to put to work... That is beyond super gigantic in the merger arb market. Credit opportunities fund the real opportunities are going to come and go. I am looking over the holdings and i have no idea how you call any of these event driven. Couple spec holdings in there but nothing too crazy. He is very concentrated given the size of the portfolio.

You got it

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

I dont think that someone breaks the record of the Medaillon Fund (~$5 billion AUM class). Averaged Return per year before fees of 45%.

Axcom Trading Advisors was the best investment Jim Simons ever made. I dont know how much of his own money Simons put in the fund, I guess $300-500 million dollar, but the return over 10 years.....

The way to generate high returns is a lot easier wiht a $1 billion fund, than with a $10 billion fund. The best fund in the Large-AUM league seems to be Bridgewater Pure Alpha.

When you have time look on the homepage of Temasek Holdings, they have a averaged year return of 17% with over $120 billion AUM. That´s amazing.

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 
RexAlpha:
Axcom Trading Advisors was the best investment Jim Simons ever made. I dont know how much of his own money Simons put in the fund, I guess $300-500 million dollar, but the return over 10 years.....

Simons didn't have that kind of money when Medallion was started. The fund 'only' had $270 million AUM back in 1993. (http://mikeonghai.blogspot.com/2005/12/rare-interview-of-james-simons-o…) Considering how high the fees at Medallion are, Simons was probably doubling his money every other year until the fund reached its peak size. Absolutely nuts.

 
GoodBread:
RexAlpha:
Axcom Trading Advisors was the best investment Jim Simons ever made. I dont know how much of his own money Simons put in the fund, I guess $300-500 million dollar, but the return over 10 years.....

Simons didn't have that kind of money when Medallion was started. The fund 'only' had $270 million AUM back in 1993. (http://mikeonghai.blogspot.com/2005/12/rare-interview-of-james-simons-o…) Considering how high the fees at Medallion are, Simons was probably doubling his money every other year until the fund reached its peak size. Absolutely nuts.

Yeah, closed to outside investors means not that Jim Simons can´t put money in his fund. RenTec is so secretive, there´s no clear information, its all speculation.

http://seekingalpha.com/article/244313-best-hedge-funds-jim-simons-meda…

What a pity, that we can´t get more information, its so interesting. Medaillon remains unreached, the alpha leader under the big HFs

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

John Paulson should retire

He´s a smart guy and family father, he should retire and trade his own money.

$16 billion, thats enough, Soros didn´t get this mass of cash over 20 years. But it´s not about the money, it´s about the game and John Paulson is still hungry.....

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

Everything over $100 million wealth is too much...

Remember Abramovicz, spending billions of dollar for yachts and estates. When you´ve got 20 estates, you can only be in one of them, why 4 privatjets, why 20 cars...

For me Friends and Family are important, money is just the fuel needed to drive on the highway of life.

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

I doubt that most of you don´t have much fun with works HF or Investment bankers do.

I ask seriously, why most of you want to work at HF or IB?..Because of money?

Correct me, if I am wrong.

No matter, how much you have in your bank.. If the work makes fun, then it is more than money.

HF is just the passion for John Paulson, even if there are often days that make him really stressful.

P.S. I am not sure whether Paolo is a smart mathematican.. He is smart, but as I know, he studied engineering. I don´t know if his strategy is based on "hardcore" math.

When reading "The Big Short", you don´t have to be a wonder kid at math. Steve Eisman studied law and could recognize the problem without calculating.

It seems to be about 70% luck.

 
Kuggi2011:
I doubt that most of you don´t have much fun with works HF or Investment bankers do.

I ask seriously, why most of you want to work at HF or IB?..Because of money?

Correct me, if I am wrong.

No matter, how much you have in your bank.. If the work makes fun, then it is more than money.

HF is just the passion for John Paulson, even if there are often days that make him really stressful.

P.S. I am not sure whether Paolo is a smart mathematican.. He is smart, but as I know, he studied engineering. I don´t know if his strategy is based on "hardcore" math.

When reading "The Big Short", you don´t have to be a wonder kid at math. Steve Eisman studied law and could recognize the problem without calculating.

It seems to be about 70% luck.

I´m not lucky, money cant replace the frustration I met in my job. Many people think IB is the easy way to make money, but only a few earn millions of dollar. They suffer from Burn-out and Alcoholism.

I´m working 80 hours per week, the reason why my girlfriends usually say goodbye after 2-3 months, I simply have no time. My free time is reserved for sleeping and sports. In the rest time I´ll join discussions at WSO and elitetraders.

Maybe one day I´ll quit the job and work as running coach or tennis trainer

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

The High Earnings in the Banking and HF Industry can be seen as indemnity for the high stress level.

I dont think that most guys feel well or relaxed in IB, young college graduates choose IB for only one reason, to earn high sums. In my division only a few traders dreamed of IB in young age, primarily obsessed to work in the field, not to earn enormous cash.

Our summer analysts from Europa and USA are mostly dumbs, I remember 2007 when they all wanted to work at my division, cause there were high income figures.

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 
RexAlpha:
The High Earnings in the Banking and HF Industry can be seen as indemnity for the high stress level.

I dont think that most guys feel well or relaxed in IB, young college graduates choose IB for only one reason, to earn high sums. In my division only a few traders dreamed of IB in young age, primarily obsessed to work in the field, not to earn enormous cash.

Our summer analysts from Europa and USA are mostly dumbs, I remember 2007 when they all wanted to work at my division, cause there were high income figures.

Horseshit on the stress level. Every job has the potential to have a high stress level. Even flipping burgers. It all depends on the situation and the personality of the worker.

 
analystonsmack:

Horseshit on the stress level. Every job has the potential to have a high stress level. Even flipping burgers. It all depends on the situation and the personality of the worker.

Of course not, never heard of the high stress level of a yoga trainer or a pastor. Its not about personality, its more about your psyche.

http://www.madhedgefundtrader.com/ http://www.tradersmagazine.com/
 

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