Here’s The Thing About Leverage

John Paulson knows what we’re talking about.
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By some measures, last year was almost a success for Paulson & Co.: It’s largest hedge fund rose by double-digits, albeit by a smaller two-digit number than the S&P 500. Another fund also managed a sub-S&P-500-but-still-respectable-looking result. Its European Event Equities fund gained 8%.

But John Paulson is a merger arbitrage man, and merger arb is just not working out so well for him, especially since he remains a confident merger arb man who’s still levering up his portfolio so as to more efficiently lose investors (well, really, mostly himself) money.

The Paulson Partners Enhanced fund, which uses borrowed money to double down on its trades, sank 35 percent last year and about 49 percent in 2016, according to a person familiar with the matter…. Investors who stuck it out in his oldest fund, Paulson Partners, lost about 42 percent of their capital over the past four years. The last two years have been the roughest: a 17 percent loss in 2017 and about a 25 percent drop the year before.

If only he’d be less bullish about all of those money-losing ideas, he might still be a 10-figure man.

One of John Paulson’s Hedge Funds Crashed 70% Over the Last Four Years [Bloomberg]

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