But at least one truth about hedge funds remains: They can be steered by wonderfully brainy types who have successfully navigated through these tumultuous times by making smart, off-beat bets. Few are better than John Paulson, who heads up Paulson & Co.
Mr. Paulson is publicity shy. His company, which has $29-billion (U.S.) in assets under management, does not have a website and his funds are tailored to institutional clients rather than retail investors.
However, his returns and his investments are on public view through filed documents - and strategic shifts in his investment portfolios have become must-watch moves ever since he bet against U.S. subprime mortgages in 2007, just as the housing market was coming undone.
That move helped his Paulson Advantage Plus fund, the firm's largest, generate returns of more than 158 per cent that year, rewarding Mr. Paulson with personal earnings of $3.7-billion in the process. Far from being a one-trick wonder, the fund generated returns of nearly 38 per cent in 2008, in part by short-selling (or betting against) U.S. mortgage giants Fannie Mae and Freddie Mac, even as global stock market indexes wilted.
Mr. Paulson does more than bet that stocks and other investments will fall in value - and it is here that regular investors can glean ideas on how to position their own portfolios for what could be a difficult slog in the years to come.
A number of websites - including gurufocus.com - do an admirable job of tracking down changes in Mr. Paulson's portfolios. As well, newspapers will often mention Mr. Paulson's activities, including reporting on his confidential year-end letters to clients. ("We remain bearish on the outlook for the U.S. economy and believe the recession will extend into late 2009 and likely into 2010," he said in his 2008 year-end letter, according to The New York Times.)
Recently, Mr. Paulson has shown a strong interest in gold, in mid-March paying $1.3-billion for an 11-per-cent stake in AngloGold Ashanti Ltd., based in South Africa.
"We believe AngloGold Ashanti is one of the best managed and undervalued of the major global gold-mining companies," he said in a statement.
Sure, but the move also suggests that he has become enthusiastic about gold, period, even as the price remains above $920 an ounce. Could Mr. Paulson be growing concerned about the fate of the U.S. dollar in the months ahead, as the Federal Reserve cranks up its money printer?
His earlier moves are no guarantee that he will always be right, of course. But when Mr. Paulson speaks, it pays to listen.
© 2007 The Globe and Mail. All rights reserved.
