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Paulson And Co Only Lost $107 Million On Well-Researched Sino-Forest Bet

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Not really enough to get upset or even mildly perturbed over, though in a letter to investors today re: the Chinese company, Paulson did note that "as the largest investors in the Paulson Advantage strategy," the disappointment in the lack of trees is shared by the Paulson partners.

According to the letter, Paulson’s initial interest in the firm followed a January 2007 news report that CVC Asia Pacific and Macquarie Bank were considering a bid for Sino-Forest. Paulson began researching the company and started building a position after news that Sino-Forest’s potential acquirers would not be bidding sent its stock price down. Then, in March 2007, after Sino-Forest sold a 16% stake of its stock to an investment group led by Temasek, Singapore’s sovereign wealth fund, Paulson & Co. decided the Chinese company’s stock was undervalued and suggested to the company that it move its stock listing from Toronto to Hong Kong or Shanghai to improve its valuation.

“As a passive investor in public companies, Paulson has access to the same information that everyone else in the securities market does. Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statement and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities,” said Paulson’s letter, noting that the firm conducted extensive due diligence on its investment. Additionally, the firm cited several legal and institutional controls that Sino-Forest had passed. Among them: financial and legal auditing by the Toronto Stock Exchange beginning in 1995; financial statements approved by such auditors as Ernst & Young; eight separate securities offerings between 2004 and 2010 and a large following by sell-side research analysts and ratings agencies. Though Paulson stopped short of denouncing Sino-Forest’s accounting, the firm attributed its decision to unload its [full] position in Sino-Forest to what it believes is irreparable damage to the company’s stock from a June 2 report from Muddy Waters Research that questioned the company’s public disclosures and financial statements.

And while the firm appears to have done the rational, level-headed thing in selling the position, it appears that some emotion is still at play, as apparently someone is not yet ready to let go, move on and never look back.

“As the largest investors in the Paulson Advantage strategy, the Paulson partners share your disappointment in this outcome,” said the letter. “We will continue to monitor the Sino-Forest situation.”

Paulson Letter Explains $107m Sino-Forest Loss [AR]


Bonus Watch '13: Paulson And Co.

The bad news: even if Paulson and Co. turns things around in 2012, they might not get to collect performance fees, on account of being under water due to last year's annus fucking horribilis. The good news: John Paulson's employee will still get paid, because that's just the kind of guy he is. Paulson’s flagship fund, Advantage Plus, fell a whopping 53 percent last year – prompting an apology to investors and a media drubbing. The decline also meant that it could be years before Advantage Plus and other fallen Paulson funds are able to return to their high-water mark, or the returns level at which John Paulson and his colleagues can begin to collect a significant percentage of their annual gains as performance fees. In an acknowledgement of that problem, Paulson recently told some employees he would reset the firm’s internal high-water mark to zero as of Jan. 1, said the person familiar with the matter, effectively meaning that if the company’s funds are in the black for 2012, those employees can collect bonuses pegged to this year’s returns and not be dragged down by last year’s losses. Paulson will pay for those bonuses himself, this person added. John Paulson Lowers the Bar to Pay Employees [CNBC] Related: John Paulson: I’ll Get The Losses This Year, Next Year We Go Dutch?