Paulson, lumbered with Sino-Forest | FT Alphaville

Paulson, lumbered with Sino-Forest

FT AlphaTilt, the swashbuckling blogging portmanteau, noticed on June 2 that Paulson & Co was listed as owning by proxy 14.13 per cent of the outstanding shares in Sino-Forest Corporation.

The timber firm’s troubles were more bad news for the world’s third-largest hedge fund, whose main fund lost 6 per cent of its value in May.

Short seller eats short seller. It’s a common irony.

Thursday’s WSJ has the skinny on some interim monthly results for the Paulson funds and has a bit more detail on those Sino-Forest losses:

Mr. Paulson’s $9 billion Advantage Plus fund lost more than 13% in the early part of this month, through June 10, leaving it down 19.65% for the year, according to two investors briefed on the performance.

The Enhanced Partners fund, which had been a big winner this year, lost nearly 7% in the first 10 days of June, and now is up less than 4% in 2011, according to the investors.

Those returns contrast with a year-to-date gain of about 1% for the average hedge fund, though Tuesday, according to data tracker HFR Inc.

One problem for Mr. Paulson: The recent collapse in shares of China forestry company Sino-Forest Corp. The timber company has tumbled 80% since late May, amid allegations by a short seller of questionable accounting, which the company has denied.

That collapse has resulted in a paper loss of more than $500 million for Mr. Paulson’s firm, based on holding figures as of April 29 from FactSet Research. Paulson & Co. owned nearly 35 million shares of Sino-Forest, according to FactSet.

One bad trade doth not ruin a superstar reputation. And of course it’s still not clear whether Muddy Waters’ accusations against Sino-Forest are correct — though the damage may have already been done.

All of which meant that our interest was piqued by this bit of raw at the tail of Reuters’ report on the Advantage Fund’s 20 per cent loss so far in 2011.

While Paulson’s investors saw a drop in performance early in 2010 as well, they were later comforted when he rallied late in the year to pull out another winner.

This year, however, the eye-popping loss might be giving some investors reason to pause especially as deadlines to withdraw their money come up, people familiar with investors’ thinking said.

In fact, Paulson stayed on in Europe after a meeting in Paris to try and raise more money. He traveled to Geneva where he met with investors, a person familiar with his travels said.

Related links:
Sino-Forest coverage – FT Tilt
Sino-Forest coverage – FT Alphaville
Paulson $9bn hedge fund falls 6% in May – FT