John Paulson’s 2011 Hedge Fund Performance

The numbers are in for John Paulson’s Paulson & Co. The hedge fund finished 2011 with depressingly low returns reports the New York Times.

Paulson’s Advantage Plus fund finished the year down 52.5%, while its unleveraged Advantage fund fell 36%. Paulson’s other funds did marginally better. Its Recovery fund, which uses a macro strategy, dropped 28% in 2011. Paulson’s credit fund finished the year down 18%. The best performing hedge funds in the Paulson & Co. stable for 2011 were the Paulson Partners fund, which ended the year down 10%, and its gold fund, which lost 10.5% in 2011.Paulson’s problem was a combination of poorly timed bets, like the ones he made on Bank of America (BAC) and Hewlett-Packard (HPQ), and over exposure. After all, Paulson’s Advantage Plus was down 47% through the first nine months of the year. Paulson owned his error, telling shareholders that he made a mistake and should not have been running so exposed without the proper hedges in place – but, then, he over-corrected several positions, missing out on the October raly as a result. For instance, he reduced his position in American Capital (ACAS) the last week of September but the stock’s share price swelled 27.19% during the month of October.

Then, there were his bets on gold mining companies, which didn’t “pan out” as expected, underperforming bullion. Paulson may have simply made his bets on gold mining companies early and he certainly wasn’t the only hedge fund manager to do so – Greenlight’s David Einhorn is also bullish on mining companies – but that didn’t help his 2011 numbers.

In any case, Paulson’s clients are staying put – Paulson “had received gross redemption requests totaling less than 8 percent of the firm’s assets under management.”