Posted by on July 27, 2017 5:15 pm
Tags: , , , , , , , , , , , , , , ,
Categories: Alternative investment management companies Bloomberg News Business Economy Economy of the United States Finance Health Hedge fund Henry Paulson Housing Market Jeffrey Tarrant John Paulson money Paulson Paulson & Co. Paulson Long/Short Fund Troubled Asset Relief Program

After gaining instant fame with his massive subprime bet back in 2008/2009, John Paulson can’t seem to buy a clue of late.  Over the past couple of years, a series of strategic missteps have resulted in abysmal returns and increasing concern among investors that Paulson may have been nothing more than a “one-trick pony” all along.

Of course, as we pointed out back in November, one of the biggest of those ‘missteps’ seems to have been the creation of a $500 million, long-short equity fund focused on healthcare about two years ago. 

The strategy seemed simple enough at the time: make a massive, Paulson-esque bet on the consolidation of large multi-national pharmaceutical businesses, hedge that bet with bearish wagers on the broader markets and sit back and wait for the money to flow in just like with the subprime bet.  Unfortunately, exactly the opposite happened in 2016 with the broader markets advancing while Paulson’s largest pharma holdings completely collapsed anywhere from 30% – 85%.  Oops.

Alas, it seems that Paulson is finally willing to admit what the market has been telling him for quite some time now, namely that he just might have been exactly wrong on his healthcare bet.   As Bloomberg points out today, this inevitable capitulation from Paulson has resulted in a “re-focusing” of his firm and the shuttering his first ever separately managed fund.

Paulson & Co., the investment firm that shot to fame betting on the collapse of the U.S. housing market, is closing its 2-year-old long-short equity fund in an effort to shift strategies after a steep drop in assets.

“We are re-focusing the funds on our core areas of expertise in merger arbitrage and distressed credit, where our assets have been growing,” founder John Paulson said in a letter to investors seen by Bloomberg News. “We thank the long-short team for their efforts on behalf of the company.”

Amid the changes, Jim Wong, the head of the firm’s investor relations, is leaving after 14 years, Paulson told clients in its letter. He will be succeeded on Aug. 1 by Tina Constantinides, who’s been with the company for 13 years.

Of course, the healthcare fund in question, the Paulson Long/Short Fund, was celebrated just over two years ago when it was launched with $500 million in seed capital.  Guy Levy was named the sole portfolio manager of the fund which marked the first (and we suspect the last) time Paulson granted autonomy over a separately manged pool of capital under his umbrella of funds.  Per CNBC back in June 2015:

Billionaire investor John Paulson is looking to make more money on health care.

Hedge fund firm Paulson & Co. is launching the Paulson Long/Short Fund to initially focus on health care, pharmaceutical, and related technology and consumer sector investments, according to a letter sent to clients obtained by The firm, which runs approximately $20 billion overall, is seeding the fund with $500 million.

Guy Levy, Paulson’s health-care expert, will be portfolio manager of the new fund, according to the communication.

“Guy’s talent and expertise in health care, pharmaceutical and related sector investing have added significantly to our performance over the past five years, giving me confidence in his abilities to lead this new fund,” John Paulson wrote in the letter.

While the strategy to “make more money on health care” was genius, if we understand it correctly, apparently it didn’t go exactly to plan…

Leave a Reply

Your email address will not be published. Required fields are marked *