A couple weeks back, we went on the record to say that John Paulson was in the early stages of a grand comeback. The hedge fund manager, who had become a billionaire many times over thanks to his subprime bets, only to spend the last several years sucking a magnificent amount of wind, had finally turned things around in his Advantage and Advantage Plus funds, which gained 5.6 percent and 7.6 percent, respectively, in March. Like us, Paulson obviously saw the tides turning and while that had to have felt good, it left him with a bit of a conundrum.
While seeing Advantage plus lose over half its value from the end of 2010 through March of this year was probably not exactly JP (nor his investors') idea of fun, the situation did present a unique silver lining, in that it meant that during the annii horribilis, those invested in the fund did not have to pay Uncle Sam a dime. Sensing a change in his investing karma, Paulson clearly panicked, waking up in the middle of the night to ask himself: 'But wait? How am I going to replicate the euphoria of paying no taxes, without managing a hedge fund that loses a fuckton of money first?'
Paulson didn't know but apparently the answer in part was to become a tax professor, figure it out, and then teach a class based on his findings.
Billionaire hedge-fund manager John Paulson, who last month considered a move to Puerto Rico to lower his tax bill, is starting a fund to help investors reduce the amount they owe to the U.S. government. Paulson’s $18 billion hedge-fund firm invited prospective clients to an April 24 event at Paulson & Co.’s New York offices, where the 57-year-old founder will talk about the Paulson Partners Premium LP Fund, described as a “risk- arbitrage fund for investors looking to mitigate income taxes.” The 75-minute presentation will include a 15-minute discussion of tax-deferred or tax-free investing in the fund,1 according to the invitation, a copy of which was obtained by Bloomberg News...Paulson’s Advantage Plus Fund, once part of the firm’s largest strategy, has fallen about 58 percent from the end of 2010 through March, meaning investors have paid no taxes on the fund in the last two years. All five of Paulson’s strategies began the year below their so-called high-water marks, putting longer-term clients in a favorable tax position...Paulson and his employees may benefit from the new fund, as they account for more than 60 percent of the firm’s assets.
While this is all pretty exciting for Paulson & Co, not everyone is as thrilled.
“He seems to be more focused on avoiding income taxes than on generating returns for his investors,” said Brad Alford, head of Atlanta-based Alpha Capital Management LLC, who runs amutual fund of funds that invests in hedge funds.
What Brad Alford doesn't understand is that John Paulson is a maverick. A legend. A visionary the likes of which this industry has never seen. He doesn't think avoiding taxes and caring about investors are mutually exclusive philosophies. In short, some managers see tax bills as they are and say 'pay.' John Paulson sees tax bills that never were, and says "pay not."
1.Please say the remaining 60 minutes will consist of a dramatic reading of The Greatest Trade Ever.