Paulson & Co., a $24 billion hedge fund firm that's generated huge returns from betting against subprime mortgage securities, has begun trimming those positions. Still, the firm reckons turmoil in credit markets isn't over and has been taking more derivative bets against financial-services firms that it thinks are vulnerable, according to a letter Paulson sent to investors recently. MarketWatch obtained a copy of the letter on Thursday. Paulson began betting against subprime mortgage securities last year. As delinquencies and foreclosures surged this year, some of those securities have slumped as rating agencies downgraded them. That helped the Paulson Credit Opportunities Ltd. fund return 117%, net of fees, during the third quarter. That leaves the fund up more than five-fold for the first nine months of 2007, according to the letter. As the subprime mortgage problem deepened into a global credit crisis in the third quarter, Paulson began closing some of its negative bets, locking in some of the gains from those positions. "We took advantage of market conditions to selectively realize gains," the firm wrote in its letter to investors. Paulson isn't the only hedge fund firm trimming subprime bets. Scion Capital, a $621 million firm run by Michael Burry, began unwinding similar trades recently. http://www.marketwatch.com/news/sto...x?guid={025D90B5-B645-42D3-A8D5-28C833DCF314} I can´t believe IB´s and commercial banks statements that they were unable to profit from subprime mess or at least have not been able to contain losses ! My hope is still that GS has been smart enough !
damn, Q3 saw me do well on picks from the mid august drop. dry bulk shippers, gold miners and some tech like microsoft and apple. maybe i shoulda stuck with riding the subprime mess down some more. o well maybe thats why i'm a measly small time currency trader and not running a hedge fund.
Suss------the emerging "conspiracy theory" will be that banks and IB's did profit from the sub-prime meltdown via trading that was "off the books". Instead of those profits going to the firm, traders kept them for themselves.