John Paulson, king of the subprime short, has become a goldbug. His metamorphosis can be traced to the first quarter of this year, when the New York–based hedge fund manager moved roughly 44 percent of the $9 billion in U.S. equities he had held in Paulson & Co. into exchange-traded funds specializing in gold-mining stocks and related companies. This included $2.8 billion for an initial stake in SPDR Gold Trust. Not only was that his largest equity holding, but it also made Paulson the ETF’s biggest shareholder. His stake exceeded that of the next-largest investor by five times.
A similar fund — Market Vectors Gold Miners ETF — accounted for nearly $638 million of Paulson’s assets at the end of the first quarter, making it his fourth-largest equity holding. Individual mining companies Kinross Gold Corp. of Canada and South Africa–based Gold Fields also ranked among his top-ten holdings. Paulson was even more aggressive on the gold front in the second quarter. On June 1 he boosted his stake in Johannesburg-based AngloGold Ashanti to 12.1 percent, mostly through his Advantage Plus Master fund.
The 53-year-old manager has also filed with the Securities and Exchange Commission an intention to launch both onshore and offshore versions of the Paulson Gold Fund. The moves are a clear indication that Paulson, who made a name for himself — as well as nearly $6 billion — by shorting the subprime mortgage market early in the credit crisis, is worried about inflation.
His strategy has already paid off to some degree. Most of Paulson’s funds, which currently control about $36 billion in assets, were up by 4 to 14 percent this year through the end of May. This despite a money-losing April, when Paulson was hurt by a bad short on U.K. bank Barclays after having made big bucks earlier in the year betting against British banks.
He is also looking to move into private equity and recently told clients he was raising money for the Paulson Real Estate Recovery Fund. “We believe that there will be many opportunities in distressed real estate, as borrowers default and capital becomes scarce,” Paulson wrote in a year-end letter. “Investing near the trough of this cycle should provide superior risk-adjusted returns while providing an inflation hedge.”
There’s life, perhaps, in the real estate sector too.