John Paulson’s bets on Allergan and Valeant have contributed to a near $2bn fall in his funds’ assets in the space of five months, taking the total amount managed by his hedge fund business to its lowest level in almost 10 years.
Fund documents show that the company’s assets under management had fallen to $14.3bn as of March 1, down from $16.1bn in November, and from a high of $36bn back in 2011. These numbers are unlikely to have improved since March, given sharp falls in the price of Mr Paulson’s pharmaceuticals holdings.
His funds were down about $250m after a 17 per cent plunge in Allergan shares, his largest holding, on April 5 following news that tough tax rules from the Obama administration had scuppered a takeover bid from Pfizer.
At the same time, Valeant, once favoured by Wall Street, has suffered a series of share price falls following fears over is business model and ability to repay debt. Its shares are trading at about $32.60, having stood at $262.50 in August. Paulson was the sixth-biggest shareholder as of the end of December, according to regulatory filings.
Paulson & Co’s Advantage Plus fund is down 15 per cent this year and Mr Paulson is tapping his own fortune as additional collateral for his firm’s funds as a guarantee for its credit line, according to a person familiar with the returns.
He is faring worse than most event-driven and activist funds this year as well. 2016 has not been an easy year for the hedge fund industry with sharp losses incurred by marquee names. Many managers trimmed their bullish bets and added short positions as markets fell in the first six weeks, only to have those short positions hurt them when the market reversed course.
Part of Mr Paulson’s current strategy is focusing on specialty pharmaceutical companies that may be takeover targets.
According to a presentation that Mr Paulson was giving on April 5, the day Allergan’s share price collapsed, he was telling an audience at his prime broker JPMorgan that the stock was the one “we are most excited about”.
Paulson & Co. Inc had filled a SC 13D/A form regarding Dex Media Inc. Filing Link. Per John Paulson’s company Paulson & Co. Inc’s filing, the filler reported decreased stake in the company by -65.58 % to 1,347,437 shares.
John Paulson’s Paulson & Co. Inc now owns 7.7% of the Services-company. This form was required due to trading activity on December 30, 2015.
The $30.85 billion hedge fund looks more negative after such a decrease of Dex Media, Inc’s position.
Billionaire John Paulson’s New York hedge fund firm has shut an operation in Bermuda that had been targeted by a Democratic lawmaker as a tax shelter.
Paulson’s venture, a reinsurer named PaCRe Ltd., has stopped writing new coverage, and its insurance policies have expired, according to two people familiar with the venture who asked not to be identified discussing private contracts. The insurance company that partnered with the money manager, Validus Holdings Ltd., will provide an update on the wind-down its fourth-quarter conference call, one of the people said.
PaCRe was started in 2012 with $500 million in capital, to be invested in three of Paulson’s funds, Validus said at the time. Paulson, a major donor to Republican candidates, has a net worth estimated at $9.8 billion, according to the Bloomberg Billionaires Index.
Investment Losses
Validus said third-quarter investment results included $40.7 million in realized losses relating to PacRe. Paulson’s venture also stood out for how little insurance it sold.
“PaCRe was set up in an environment when returns on high-level catastrophe risks were more attractive, and today they are not,” Ed Noonan, Validus’s chief executive officer, said in an October conference call. “Having a business with no premium coming into it isn’t a business.”
Reinsurers sell backup coverage to insurance companies, protecting them against big risks such as natural catastrophes. Paulson, David Einhorn, Dan Loeb and Steven Cohen are among hedge fund managers who have set up reinsurers in tax-friendly Bermuda or the Cayman Islands. Cohen has exited his reinsurer, and companies tied to Loeb and Einhorn are each trading below the prices from their initial public offerings.
Preferential Rate
While the ventures provide a stable pool of capital that the money managers can use to buy securities, they also offer a tax-advantaged way to invest in a U.S. hedge fund, potentially transforming any short-term capital gains generated by the fund into long-term capital gains, which are taxed at a preferential lower rate. Insurance and reinsurance companies enjoy an exception to U.S. rules meant to prevent tax avoidance through offshore investing vehicles, but the Internal Revenue Service has never clearly defined how much insurance a company must sell to qualify.
PaCRe had no insurance employees, instead depending on minority investor Validus to handle underwriting. Under pressure from Wyden, the IRS agreed last year to establish rules for the first time that would define which companies can qualify for the favorable tax treatment offered to insurers. In proposed rules issued in April, it said companies like PaCRe that outsource their insurance underwriting wouldn’t qualify for the tax break.
According to the Chronicle of Philanthropy, the biggest charitable gifts of 2015 came from well-known billionaires such as hedge fund manager John Paulson.
John Paulson was second on the list with a $400 million pledge to Harvard’s School of Engineering and Applied Sciences. The gift — the largest in Harvard University’s history – is an endowment to support the school of engineering & sciences. Paulson, who is perhaps best known for successfully betting against subprime mortgages in 2007, is a 1980 graduate of Harvard Business School.
Forbes estimates Paulson’s net worth at $11.4 billion.
According to a Form 4 filing, John Paulson of Paulson & Co. sold 757,900 shares of Cobalt International Energy last week at prices in the range of $6.57-to-$7.00 per share, cutting the fund’s overall stake in the company to 40.99 million shares.
The freshly-cut stake accounts for 9.89% of the company’s outstanding common stock. The independent exploration and production company has operations in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa, but the company has not started production yet.
Cobalt International Energy Inc. (NYSE:CIE) owns a 9.375% non-operated working interest in the Heidelberg project in the U.S. Gulf of Mexico, which is anticipated to commence production in the second quarter of 2016. The company reported a net loss from continuing operations of roughly $49.7 million for the third quarter of 2015, which was down by 26% as compared to the same period a year ago.
Meanwhile, the stock appears to be following the ups and downs of crude oil prices, and has lost 29% so far in 2015.
