How come these "wise" guys aren't buying gold companies?
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John Paulson Making Big New Bet on Gold
NOVEMBER 18, 2009, 12:06 P.M. ET
By GREGORY ZUCKERMAN
One of the biggest investors is placing a big new bet on gold.
John Paulson, who scored about $20 billion of profits for his hedge fund between 2007 and early 2009 wagering against the housing market and financial companies, is launching a fund dedicated to buying up shares of gold miners and other bullion-related investments, according to three investors.
Mr. Paulson spoke about the new fund, which will begin on January 1, at a meeting with his investors Tuesday in New York. The gold fund will invest in gold-related shares and gold derivatives and will aim to outperform gold prices.
Paulson & Co. already is a major holder of gold shares including AngloGold Ashanti Ltd. and Kinross Gold, doing most of its buying early this year. Mr. Paulson currently has more than 10% of his $30 billion or so under management in gold-related investments, according to his investors.
Mr. Paulson also owns billions of dollars of gold exchange-traded funds and forward contracts that he uses for gold-backed investor classes of his various funds. These gold investments have benefited from the recent surge in gold prices to nearly $1150 an ounce.
But investing in gold has become a conventional choice for investors worried about the values of leading currencies, including the dollar, on the heels of the huge amounts of money being printed and shoveled at various troubled areas of global economies. Gold's growing popularity raises questions about whether Mr. Paulson's increased affection for the yellow metal is misguided; the insurance he bought on subprime mortgages was home run for him because it was selling at dirt-cheap prices when Mr. Paulson did his buying in 2006.
At the same time, the investments Paulson & Co is set to buy for its new fund could be more volatile than overall gold prices, according to investors, so if gold falls the new fund could underperform.
At Tuesday's investor meeting Mr. Paulson argued that the bull run was only beginning for gold; he said he was starting the new fund in part to give himself more personal exposure to gold. Mr. Paulson, who is estimated to be worth about $6 billion, said he would himself invest as much as $250 million in the new fund, according to an investor at the meeting. |
