John Paulson's Hedge Fund Struggles Continue In Q4'17

in INVESTING IDEAS by

I take a closer look at Paulson & Co’s list of stock holdings where values have decreased by -8.0% from the previous quarter.


Paulson’s Fall From Hedge Fund Stardom

At its peak, Paulson’s hedge fund managed $36 billion in 2011. But now his firm oversees less than $10 billion which lead to the New York Times writing a piece on how he’s fallen from hedge fund stardom. Candidly, Paulson & Co. has performed so poorly in the last few years that outside investors really have had no choice but to swallow their losses and flee.

Paulson’s dismal performance got more attention than it otherwise would have when (then presidential candidate) Donald Trump filed his financial disclosure in July 2015. The document showed that he lost $1.5 million (-40% on investment) in the Paulson Advantage Plus fund. Losses from this flagship fund continued with the New York Times citing the Advantage fund has consecutively recorded double-digit losses over the last three years. In a letter to investors, Paulson called 2016 “the most challenging year since inception.”

It appears that 2017 was also unkind to Mr. Paulson as revealed in his firm’s recent 13F disclosure.


Paulson & Co’s Latest Form 13F Filing

On February 14th, John Paulson’s firm Paulson & Co filed its quarterly Form 13F regulatory filing. I reviewed the filing to gain a glimpse into the firm’s large portfolio.

Paulson & Co’s stock portfolio totals $5.1 billion according to the latest filing. The list value of stock holdings is down -8.0% when compared to the last quarter. As a benchmark, the S&P 500 was up 6.1% over the same period.

The Ideas section of finbox.io tracks top investors and trending investment themes. You can get the latest data on the holdings discussed below at the Paulson & Co page. The following table summarizes the firm’s largest holdings reported in the last filing:

Paulson & Co Largest Holdings
Ticker Name Holding ($mil) % Of Portfolio
GLD SPDR GOLD TRUST $539.1 10.5%
MYL MYLAN N V $525.9 10.3%
SHPG SHIRE PLC $473.5 9.2%
VRX VALEANT PHARMACEUTICALS INTL $433.0 8.5%
AGN ALLERGAN PLC $310.6 6.1%
TMUS T MOBILE US INC $284.1 5.5%
CZR CAESARS ENTMT CORP $237.2 4.6%

The seven positions above represent 54.7% of the fund’s total portfolio.


Paulson & Co’s 7 Biggest Sells

Here’s the list of biggest position reductions determined by comparing the last two filings:

Paulson & Co 7 Biggest Sells
Ticker Name Sold ($mil) % Of Portfolio
CACQ CAESARS ACQUISITION CO $281.4 5.1%
AABA ALTABA INC $149.0 2.3%
BAC.WS/A BANK AMER CORP $82.9 1.5%
TMUS T MOBILE US INC $46.1 5.5%
SGYP SYNERGY PHARMACEUTICALS DEL $44.7 0.2%
TEVA TEVA PHARMACEUTICAL INDS LTD $43.1 0.8%
RLGY REALOGY HLDGS CORP $33.0 0.6%

The largest stock sale for the quarter was Caesars Acquisition Company (Nasdaq: CACQ). Paulson & Co reduced its position in the company by $281.4 million and the stock now represents 5.1% of the firm’s portfolio.

The next largest stock sale was Yahoo! Inc. (NasdaqGS: AABA). Paulson & Co reduced its position in the company by $149.0 million with the stock now representing 2.3% of the firm’s portfolio.


Paulson & Co’s Recent Price Pull-Back Stocks

To find stocks in the firm’s portfolio that are unpopular at the moment, I ranked the firm’s holdings by worst performance over the last month. The ranking table below lists the stocks in Paulson & Co’s portfolio that have done terribly of late.

Paulson & Co Recent Price Pull-Back Stocks
Ticker Name Price 1-mo Ago Current Price % Change 1-mo
BKD BROOKDALE SR LIVING INC $9.83 $6.90 -29.8%
SGYP SYNERGY PHARMACEUTICALS DEL $2.63 $1.89 -28.1%
SD SANDRIDGE ENERGY INC $19.29 $15.67 -18.8%
CAA CALATLANTIC GROUP INC $63.68 $53.12 -16.6%
VRX VALEANT PHARMACEUTICALS INTL $22.30 $18.66 -16.3%
GOLD RANDGOLD RES LTD $100.03 $84.91 -15.1%
MGI MONEYGRAM INTL INC $13.19 $11.26 -14.6%

Brookdale Senior Living Inc. (NYSE: BKD) is Mr. Paulson’s worst-performing stock over the last 30 days. Shares have fallen by nearly 30%!

In fact, six additional Paulson and Co positions (as of December 31st) have lost at least 15% of their value in a very short time period.


The Greatest Trade Ever

John Paulson is best known for his 2007 bet against the U.S. housing market where he reportedly earned over $4 billion personally on one trade. Gregory Zuckerman, a reporter at the Wall Street Journal, went on to write an entire book about the trade titled: The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History.

Paulson is not considered a mortgage or real estate expert but rather specializes in “event-driven” investments, most notably merger arbitrage. In fact, he was a relatively unknown fund manager prior to foreseeing the subprime mortgage crisis.

In 1994, he founded his own hedge fund, Paulson & Co., with $2 million and one employee. In addition to merger arbitrage, he frequently made other event-driven bets in relation to spin-offs and proxy contests. This is where Paulson’s expertise truly lies after working nearly a decade in Bear Stearns’ M&A division. By 2002, his fund had quietly grown to over $500 million but it took “the greatest trade ever” to solidify himself as a hedge fund titan.

However, the best times may be in the rear view mirror for Paulson & Co.


Author: Andy Pai

Expertise: financial modeling, mergers & acquisitions

Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights:

  • Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores.
  • Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets.

Andy can be reached at andy@finbox.io.

As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.

John Paulson's Hedge Fund Struggles Continue In Q4'17

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Source: finbox.io mavericks analysis
John Paulson’s Hedge Fund Struggles Continue In Q4’17

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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