Thursday, May 21, 2009

John Paulson's Real Estate Recovery Fund

John Paulson, the hedge fund manager who made an estimated $3.7bn (£2.4bn) shorting the US housing market ahead of its collapse, is placing a firm bet on a medium-term property recovery with the launch of a new fund.

Paulson & Co. is in the early stages of raising money for the new fund. In a departure for the firm, which tends to be more focused on running hedge funds, the new venture will be a private equity fund.

Documents recently filed with the Securities and Exchange Commission will allow Paulson & Co. to begin talking to investors about the fund for the first time – with fundraising expected to begin shortly.

Although a cap on the fundraising has not been decided, it is expected that the initial size of the fund will be a couple of hundred million dollars.

Mr Paulson has hired Mike Barr, a former managing director in Lehman Brother’s $25bn-plus real estate private equity practice in New York, to manage the fund.

Mr Barr is being assisted by former colleague Jonathon Shumaker in managing the fund, which will be known as the Paulson Real Estate Recovery Fund.

The life of the fund is expected to be seven years, with investments to be made in both the residential and the commercial property sectors.

By investing at what Paulson appears to believe is the bottom of the market, the fund will hope to reap the eventual upturn in ravaged property prices.

As well as investing in existing property, Mr Barr will work with Tom Noon, a former executive with US house builder DR Horton, who will source residential land developments.

The new fund will compliment Paulson’s recently established recovery fund, which is focusing on investing in ailing financial institutions, while his main mergers and arbitrage fund continues to grow.

Stringing together the recent SEC filings of John Paulson, makes one thing clear: he is betting big on the reflation trade. Paulson’s latest 13-F filing shows large positions in Anglogold, Kinross gold ( KGC 18.68 ↑6.93%), Gold Fields (GFI 12.95 ↑4.02%), market vectors gold ETF and the S&P gold ETF.

At first, the news of large gold purchases early last month were seen as potential armageddon plays based on Paulson’s big bets on the collapse of the economy last year, but it’s now clear that Paulson is betting big on inflation in the coming years.

(from Telegraph and The Pragmatic Capitalist, May 20, 2009)

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