Wednesday, November 19, 2008

John Paulson’s Toast to His Firm’s Fortunes

Do you think it might be a turn-on for billionaires to hold a soiree featuring extremely expensive food and wine immediately after looting the public till to keep family companies afloat (with betting against subprime mortgages as their most recent business strategy)? Well, how about having the ex-Chairman of the Federal Reserve (credited widely with creating the "subprime conditions") as a partner and companion celebrant right after he admitted that he had been wrong about the effects of his actions (and undoubtedly "shocked! shocked! that gambling was going on" in this type establishment)? No? I guess you've got to read The New York Times more closely then. So let's see. First you set up the easy-to-roll market and then you bet against it. I hate to say it, but hasn't this gambit worked before? Do you think there might have been any Rockefeller or Rothschild connections present? (Brrr!) ________________________________

November 19, 2008 Most hedge funds these days are spending their time crying over their losses — when they’re not shutting down. But John A. Paulson instead was celebrating his funds’ performance with more than 100 investors at an opulent dinner Monday night at the exclusive Metropolitan Club in Midtown Manhattan, facing Central Park. The soiree was held in the cozily candlelit dining room of the club, where Mr. Paulson and his firm, Paulson & Company, feted their funds’ good fortune and outlined their next steps amid the market turmoil. And while the institutional investors listened to Mr. Paulson and Alan Greenspan, the former Federal Reserve chairman, a senior adviser to the firm, they also enjoyed choice wine pairings for their dinner. (Bottles of 1999 Chateau Lafite-Rothschild, anyone?) Despite the chilliness of the November evening — and the slashing of bonuses for top Goldman Sachs executives — the crowd at the Metropolitan Club betrayed no signs of the financial distress. The din that spilled from the dining room into the marbled-and-gilt main chamber was filled with laughter. Mr. Greenspan spoke while guests dined on a three-course meal – preceded, of course, by a cocktail reception featuring Krug Grand Cuvee champagne and 2006 Chassagne-Montrachet from Domaine Marc Morey. For dinner? Jumbo crabmeat & avocado, paired with 1999 Haut-Brion; and Colorado rack of lamb with tarragon jus and parmesan polenta cake, paired with 1999 Chateau Margaux and 1999 Lafite-Rothschild (which can fetch more than $500 a bottle). Paulson & Co. can surely afford the luxury. The $36.1 billion hedge fund famously racked up billions of dollars in profit by betting against subprime mortgages. And a thick handout to investors at the dinner detailed just how well the firm has been doing. While the Standard & Poor’s 500-stock index plunged nearly 17 percent in October, the Paulson Advantage fund gained nearly 3.5 percent. The firm’s event arbitrage funds, with $19.1 billion in assets under management, are up more than 19 percent for the year in the unleveraged fund and 30 percent on Paulson Advantage Plus, which is levered 1.5 times. Paulson & Co.’s merger arb funds, which bet on the outcome of announced deals, have also performed well: 6.15 percent for the year in the unleveraged fund and 9.5 percent in the Paulson Enhanced fund, which is levered 2-to-1. Mr. Paulson may also have been celebrating surviving a grilling by Congress. It’s clear that he believes the credit crisis has a ways to go, judging by the pages devoted to charts showing trouble across the debt spectrum. Displayed prominently in the book is a quote from Martin Feldstein, the chief executive of the National Bureau of Economic Research: “The United States has already slipped into a deep recession that could be the most serious since World War II.” How does the hedge fund plan to stay afloat in the short term? By building up cash, maintaining short positions — and preparing to buy up debt for the long term. Prices of prime and Alt-A mortgages have fallen sharply, as have leveraged loans and high-yield bonds, the firm noted. Paulson & Co. is also setting up a recovery fund, meant to provide equity to shore up capital in financial institutions as well as snap up the debt for long positions. Unlike the firm’s merger arbitrage fund, the Paulson Recovery Fund is open, so long as you have at least $10 million to invest and don’t mind a three-stage redemption process that stretches out to 2012. –Michael J. de la Merced and Zachery Kouwe
Le Chaim! Suzan ____________________________

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