Trader Racks Up a Second Epic Gain

Discussion in 'Wall St. News' started by RedDuke, Jan 28, 2011.

  1. RedDuke


    All I can say is WOW!!!!!!!!!!!!!!!!!!!!!!!!

    $5 Billion Profit for John Paulson

    Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his "short" bets against subprime mortgages in 2007.

    Mr. Paulson's take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers. Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.

    By comparison, Goldman Sachs Group Inc., Wall Street's most profitable investment bank, paid all of its 36,000 employees a total of $8.35 billion last year. James Gorman, chief executive of 76-year-old investment bank Morgan Stanley, is expected to receive compensation of less than $15 million for 2010.

    Mr. Paulson and his fellow managers seldom take much of their profits in cash. Some of the profits are so-called paper gains, which reflect the rising value of their firms' holdings, and could erode if those investments sour. Other gains come from selling investments, and most of those are rolled back into their funds.

    Mr. Paulson and the other top managers made winning bets on commodities, emerging-market companies, bank shares and U.S. Treasury bonds, among other investments. These moves, along with profitable picks by other funds, are part of the reason the hedge-fund industry is back on its feet after a rough stretch. Assets managed by hedge funds have grown to a near-record $1.92 trillion, up 20% over the past year. Assets jumped almost $150 billion in the fourth quarter alone, the largest quarterly growth on record, according to Hedge Fund Research, Inc.

    Still, the average fund gained just 10.49% last year, according to the research firm. That's well below the 15% gain of the Standard & Poor's 500 stock index, including dividends, and the 19% return of the average stock mutual fund, raising questions about whether the industry can profitably invest the influx of new cash.
    [HEDGE chart]

    Indeed, the enormous gains by Mr. Paulson and the other managers resulted from solid, though not spectacular, performance. Their personal gains came in part from the sheer scale of assets under their control. The largest hedge fund in Mr. Paulson's $36 billion investment portfolio, Advantage Plus, grew 17% last year, while another big one rose 11%, falling below returns for the broader stock market.

    Part of Mr. Paulson's more that $5 billion profit came from his firm's 20% cut of his funds' profits, known in the industry as the "performance fee." Those fees amounted to roughly $1 billion last year, according to a person familiar with the matter. An added plus for Mr. Paulson: A chunk of those profits are treated as long-term capital gains and taxed at a far lower rate than the standard income-tax rate.

    More than $4 billion came from gains on Mr. Paulson's investments in his funds.

    Mr. Paulson amped up profits for himself and many of his investors in a novel way. He was worried about long-term weakness of the dollar and other major currencies, so he devised a way to embed a bet on gold into each of his funds—for those investors who opted for that approach. Mr. Paulson has placed the bulk of his own wealth in these gold-denominated funds and a separate gold-focused fund. Because gold rose sharply in value last year, the gold-denominated versions of his funds rose as much as 45%.

    The performance last year, nevertheless, paled in comparison to his 2007 returns, when Mr.
  2. achilles28


    Holy shit.
  3. risky63


  4. cstfx


    And give it until the end of the day before someone in Congress again calls for the increased taxes on hedge funds.

    Just wait.
  5. That's the way it has been, daytrading, scalpers and prop trading has been dead for ages. The big sharks are gobbling up everything they can. they day where some jock straight out of college can become a great daytrader by swinging big size intraday is over, the nerds have inherited this earth.
  6. RedDuke


    Day trading is not dead and so is scalping. Things just evolved. Scalping is mostly automatic these days. And day trading is thriving for those who know what they are doing.

    However, nothing can beat OPM. That's my ultimate goal, but I am far from it yet.
  7. Paulson was down on the year until he and other now taxpayer subsidized fund managers were bailed out by Bernanke from Sept 1 on.
  8. Leveraging his returns using gold... risky stuff... awesome when it all goes right.

    He did well with the gold bet but only made $$ on the market in the last 2 months of the year (from what I remember hearing).

    He barely beat the index with his returns (17% return vs 15% market) but by parlaying it into gold he made as much as 45%... he is laughing... unless gold collapses and then we will see how well he earns his $$$
  9. 5 billion big ones. No staring at charts. No supercomputers colocated at the exchange and no PhD algorithms.
  10. Lets not forget what Paulson's history is, he is a merger guy first and fore most. He made good money buying the cheap debt of companies like Enron back in late 2002 and 2003, thats what he does. He bought Citi and BOA when it was dirt cheap. He sold 86 million shares of C when he was up 45% but still owns over 400 million shares. He is a master of debt acquisition
    #10     Jan 30, 2011