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The hottest trade on Wall Street–Betting against the Japanese Yen

| March 5, 2013 | 0 Comments

By GREGORY ZUCKERMAN
Some of the biggest U.S. hedge-fund investors have made billions betting against the yen, exploiting Japan’s determination to weaken its currency and boost its economy.

Wagering against the yen has emerged as the hottest trade on Wall Street over the past three months. George Soros, who made a fortune shorting the British pound in the 1990s, has scored gains of almost $1 billion on the trade since November, according to people with knowledge of the firm’s positions. Others reaping big trading profits by riding the yen down include David Einhorn’s Greenlight Capital, Daniel Loeb’s Third Point LLC and Kyle Bass’s Hayman Capital Management LP, investors say.
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Filed Under: Trades

The $300 Million Blunder

| March 26, 2011 | 0 Comments

Jabre Bought Japanese Shares After Quake, but Bailed Too Soon, Missing Rebound
By GREGORY ZUCKERMAN

Few investors have made as many mistakes navigating markets over the past two weeks as Philippe Jabre.

Mr. Jabre, one of Europe’s best-known hedge-fund managers, bought Japanese stocks on news of the earthquake, and then suffered when the Nikkei Stock Average quickly tumbled 13%. Making matters worse, Mr. Jabre got nervous and sold his shares last week, just before a rebound in Japanese stocks. The miscues cost his firm about $300 million, the worst few days of his career.

But as Mr. Jabre reflects on his decisions, he isn’t sure he made many mistakes.

“I keep thinking about it, what could I have done differently?” said Mr. Jabre, who manages $6 billion hedge fund Jabre Capital Partners SA. “I spent all last weekend asking questions” of friends, colleagues and clients, he said. “We couldn’t take the risk of the Tokyo Stock Exchange closing down, so we sold” Japanese shares.

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Filed Under: News, Trades

‘Macro’ Traders Ride Yen’s Volatility

| March 18, 2011 | 0 Comments

By GREGORY ZUCKERMAN

As financial markets struggle to digest the catastrophic effects of Japan’s earthquake, growing violence in the Middle East and resulting jolts to global economies, traders like John Brynjolfsson and Samer Nsouli are engaged in a furious fight to try to stay ahead of events.

Wednesday afternoon, Mr. Brynjolfsson was in the lobby of a Denver office building, waiting to meet a potential investor for his hedge fund, Armored Wolf LLC. Rather than review notes for the meeting, however, Mr. Brynjolfsson couldn’t take his eyes off a television screen flashing market prices.

Soon he was calling contacts at Wall Street banks, searching for information about what he describes as “a freefall panic” in currency markets that sent the yen soaring to its highest level in years, and the dollar tumbling, all between 5:10pm to 5:20 Eastern time on Wednesday.

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Filed Under: News

Trader Racks Up a Second Epic Gain

| January 28, 2011 | 0 Comments

$5 Billion Profit for John Paulson
By GREGORY ZUCKERMAN

Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his “short” bets against subprime mortgages in 2007.

Mr. Paulson’s take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers. Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.

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Filed Under: Gold, John Paulson, News, Trades

Cocoa’s Drop Pressures a Big Wager

| August 27, 2010 | 0 Comments

By GREGORY ZUCKERMAN And LIAM PLEVEN

Mr. Ward’s Armajaro Holdings Ltd. shook up the commodities market in July by buying a $1 billion cache of cocoa, enough to make 15 billion Hershey’s milk-chocolate bars. But since Mr. Ward made his audacious bet, cocoa prices have dropped 26%.

Two hedge funds run by Armajaro, including its CC+ Fund, which focuses on cocoa and coffee, lost about 6% of their value during the first two weeks of August, according to investors who have viewed the returns. And since then, prices have continued to decline, suggesting Mr. Ward could be coming under more pressure.

It isn’t certain the drop in cocoa is to blame for the recent losses. And some analysts say the recent decline in prices may be short-lived. An Armajaro spokesman declined to comment.

The funds remained up about 12% on the year through the middle of August, the investors say.

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Filed Under: Articles

Firm Makes Bold Bet on Falling Prices

| August 26, 2010 | 0 Comments

A Wager by Fairfax Financial Risks $174 Million. If Deflation Arrives, It Could Be Worth Billions.

By GREGORY ZUCKERMAN

A Canadian insurer is turning to a seldom-used strategy to make a big wager on falling prices over the next decade.

Greg Zuckerman discusses a Canadian insurer that has wagered on derivatives that profit from a decline in consumer prices.
As more investors worry about the possibility of deflation—or a sustained period of falling prices that could cripple stocks—Fairfax Financial Holdings Ltd. has spent nearly $200 million to buy derivative contracts wagering on a decline in the consumer-price index, an inflation indicator. The trade could lead to huge profits if deflation occurs.

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Filed Under: Articles

Pellegrini’s Hedge Fund to Return Money to Investors

| August 21, 2010 | 0 Comments

Paolo Pellegrini, the investor who helped hedge-fund manager John Paulson score more than $15 billion of profits betting against risky mortgages, is returning money to clients of his own hedge fund after suffering losses this year.

Mr. Pellegrini’s PSQR Capital has lost about 11% so far in 2010, according to a person close to the matter. The decline included a drop of about 8% in July, after bets against U.S. Treasurys and other moves went awry. The loss has made it more difficult for him to raise cash from investors.

Mr. Pellegrini’s fund gained more than 61% last year, and he had hopes of growing the firm, which he launched after leaving Paulson & Co. But investors have proved reluctant to place money with midsize hedge funds over the past year. The decision was reported by AR Magazine.

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Filed Under: Articles

Gregory Zuckerman to appear at Wellesley Booksmith

| June 2, 2010 | 0 Comments

Ever wonder how someone could earn four billion dollars in one year? Find out at Wellesley Booksmith on June 10 at 7 p.m. and hear what Wall Street Journal Senior Writer Gregory Zuckerman, author of “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History,” has to say.

Zuckerman’s book depicts the evolution of hedge fund megastar John Paulson’s massive payday resulting from his timely bet against sub-prime mortgages when housing prices appeared to have a one-way ticket to the moon . Zuckerman’s portrait of the colorful gallery of individuals who won and lost as a result of the housing meltdown makes the book a compelling read even for financial novices.

“The Greatest Trade Ever” has recently received renewed attention amidst the SEC’s allegations regarding Goldman Sachs role in Paulson’s trades. Who thought a book about the hedge fund industry could be a page- turner?

Space is limited, so reservations requested. Call 781-431-1160; events@wellesleybooksmith.com. The event will be downstairs at Wellesley Booksmith, 82 Central St.

Filed Under: Articles

Paulson Confronts Goldman Fallout — Hedge Fund Allays Investors’ Concern; ‘I Felt Reassured’

| April 21, 2010 | 0 Comments

By Gregory Zuckerman and Jenny Strasburg

John Paulson hasn’t been accused of any wrongdoing. But the hedge-fund billionaire has gone on the offensive to reassure investors that his huge firm will emerge unscathed from a case that has drawn him into a political and legal vortex.

The steps, including a conference call with about 100 investors late Monday, come amid indications from some clients that they might withdraw money from his firm after a lawsuit brought by the government against Goldman Sachs Group Inc. related to an investment created at his firm’s request.

Investors have indicated they are concerned that scrutiny over the firm’s deals may spread, including to overseas regulators. They said they wanted to protect themselves in case new information emerges that could damage the hedge fund, they say. Another issue, they say: The legal case could simply prove a distraction for Mr. Paulson.

“Some of the callers asked pointed questions, almost like a court inquisition, but most people were supportive,” said Brad Alford, who runs Alpha Capital Management. “I felt reassured that he did nothing wrong.”

“It’s not a rush for the doors,” said another investor in Paulson & Co. who has communicated with larger Paulson investors since Friday, when the government unveiled its Goldman case.

Mr. Paulson sent a letter to investors Tuesday night saying that in 2007 his firm wasn’t seen as an experienced mortgage investor, and that “many of the most sophisticated investors in the world” were “more than willing to bet against us.”

Mr. Paulson’s firm focuses on largely liquid investments, those relatively easy to sell without pushing prices much lower. Even if a number of investors ask out, the firm likely will be able to sell investments without crippling their holdings, investors say.

Some traders have been examining Mr. Paulson’s top holdings and positions in which filings indicate he has been a substantial holder since the news, they say. When the news of the lawsuit broke on Friday, some of these stocks, including Conseco Inc., Cheniere Energy Inc. and AngloGold Ashanti Ltd., fell sharply.

The case has delayed the initial public offering of a Canadian investment fund, Propel Multi-Strategy Fund, formed to give investors exposure to two funds advised by Paulson, according to people familiar with the offering. Propel didn’t respond to requests for comment.

On the Monday night conference call, some investors asked if Mr. Paulson or anyone at the firm had received a government notice of potential civil charges, called a Wells notice, according to people familiar with the call.

Mr. Paulson said no. Mr. Paulson said the case wasn’t a distraction that was affecting the firm’s investments, and that he was confident the public glare would abate.

On the conference call, Mr. Paulson calmly explained the trade with Goldman, which involved a “short” bet on mortgage bonds. He said that the very nature of the transaction required both a “long” and “short” investor, suggesting that investors knew that a bearish investor had bet against the deal.

Mr. Paulson suggested to clients that the large investors who purchased the Goldman deal and others relied on rating firms, and didn’t do enough of their homework, investors say.

The hedge-fund firm has a deadline next Friday for investors who want to withdraw money on June 30. Paulson allows most investors to pull out four times a year, but they need to give at least 60 days notice. Investors can cancel redemptions before the end of June.

Magnetar Capital LLC, another hedge-fund firm that, like Paulson, was heavily invested in collateralized debt obligations in 2007 also has been working to reassure investors that it believes its mortgage-linked investment strategy was sound and can withstand regulatory scrutiny.

Investors in Magnetar, which oversees some $7 billion in assets, also have a deadline next week to request June withdrawals of money. The Evanston, Ill.-based firm sent an 11-page letter to investors Monday saying that it didn’t control which individual assets went into CDO deals in which it invested.

It isn’t clear whether scrutiny of Magnetar will rattle its investors, who have known some details of the firm’s strategy for several years. An article this month in news outlet ProPublica was the latest to assert that Magnetar designed deals built to fail that caused cascading losses for investors on the other side of the trades. The hedge fund’s strategy was the subject of a Jan. 2008 Wall Street Journal article. Magnetar told investors this week that it based its mortgage-CDO strategy on statistical models, not a fundamental belief that the housing market would slide.

A Magnetar spokesman said, “Our communications with investors have been very positive and supportive.”

Stephen Grocer and Ben Dummett contributed to this article.

Filed Under: Articles

Ex-Paulson Exec Told ACA Firm Would Go Short On Abacus

| April 21, 2010 | 0 Comments

By Gregory Zuckerman and Serena Ng
Of THE WALL STREET JOURNAL

Paolo Pellegrini, a former top executive at hedge-fund Paulson & Co., told investigators at the Securities and Exchange Commission that he had informed ACA Management LLC that his firm was betting against the transaction at the center of a lawsuit the SEC brought against Goldman Sachs Group Inc. (GS), according to a person familiar with the matter.

The testimony, in late 2008, could undermine the government’s case against Goldman, which is accused of misleading ACA, the deal manager, about Paulson’s bearish position on the deal.

Pellegrini and the Paulson team worked with both Goldman Sachs and ACA to structure the deal.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

SEC spokesman John Nester said, “Our case is built on a thorough evidentiary record that includes testimony, documents, handwritten notes and emails that will be presented in court at the appropriate time.”

Details of Pellegrini’s testimony were reported earlier by CNBC.

The SEC in its complaint alleges that Goldman “misled ACA into believing” the Paulson firm “shared a long interest with CDO investors.” Goldman has denied wrongdoing and is fighting the charges.

ACA Management, an asset-management company set up under the umbrella of bond insurer ACA Financial Guaranty Corp., earned fees for overseeing investment portfolios of mortgage securities, corporate loans and other credit assets. Goldman engaged the firm when Paulson approached it looking for a way to extend its bearish bet on the housing market, the SEC complaint alleges. The CDO management business at ACA was headed by Laura Schwartz, a former Merrill Lynch investment banker who previously worked in divisions of the bank that originated securities backed by U.S. subprime loans and commercial mortgage debt.

Ms. Schwartz was a main point person in the discussions between ACA and Goldman and was at an early 2007 meeting with representatives of Paulson and Goldman, according to Goldman’s responses to the SEC’s “Wells” notice of possible civil charges, regarding the issue. After that meeting, Ms. Schwartz emailed a Goldman employee to ask for feedback on the meeting and said she wasn’t clear about how Paulson wanted “to participate in the space,” the Goldman papers said.

Ms. Schwartz, when reached on her cellphone, did not stay on the line. She no longer works for ACA. A representative for ACA Financial didn’t comment.

Last fall, when Goldman responded to the SEC’s Wells notice, the securities firm argued that whether ACA perceived Paulson to be the so-called “equity” investor in the CDO–and therefore having a “long” position–was “of no moment.” ACA, Goldman has argued, was supposed to be an independent expert on selecting mortgage assets.

Goldman argued in documents it submitted to the SEC that Ms. Schwartz, who was deeply involved in selecting the assets for the Abacus deal, should have known from previous ACA-managed deals that hedge funds could have both long and short positions in a CDO. Goldman cited an ACA-managed CDO that closed in late 2006 whose equity investor was a hedge fund called Magnetar Capital that also took short positions in the same deal. “Certainly, ACA could have questioned Paulson about its interests if the information was significant to it,” Goldman’s Wells response to the SEC said.

At ACA, Ms. Schwartz’s roles included reviewing and approving securities that would be part of investment pools the firm oversaw. In presentations to investors, she often talked about her extensive experience analyzing residential mortgage-backed securities and ACA’s expertise and ability to select mortgage securities, according to people familiar with the matter.

ACA Management managed CDOs put together by several Wall Street firms including Bear Stearns Co. and UBS AG (UBS), according to records reviewed by The Wall Street Journal. At the end of 2007, ACA Management was overseeing around $19 billion in CDOs, the bulk of them bundles of mortgage-backed or asset-backed securities. Of about 30 CDOs managed by ACA, more than half were issued during 2006 and 2007, according to the company’s financial statements.

Filed Under: Articles