Monday, March 26, 2018

"John Paulson’s Merger Arbitrage Fund Plunged at the Start of the Year"

Well then it wasn't an arbitrage, was it?

From Bloomberg:
 John Paulson’s Merger Arbitrage Fund Plunged at the Start of the Year  
  • Partners Enhanced fund is said to plunge 23% this year
  • Pure Spread and European Event Equities funds saw gains
Billionaire John Paulson can trace his loss of assets and senior executives to a familiar refrain: poor performance.

Paulson is now re-focusing his firm on his founding strategy -- merger arbitrage -- despite some disastrous returns in recent years. The Paulson Partners Enhanced fund, which uses borrowed money to double down, sunk 23 percent in the first two months of 2018, according to a person familiar with the matter, after plunging about 70 percent over the past four years.

The losses come amid a fund revamp at Paulson’s namesake firm, once one of the biggest in the industry. It will return money to investors in some funds including the Credit Opportunities, Bloomberg News reported Friday. Investors in that credit fund can transfer their capital to a separate pool or they’ll be forced to redeem.

It’s a sobering turnabout for Paulson, who shot to fame and fortune a decade ago with a dramatic, winning bet against the U.S. housing market. But after a series of missteps, the firm’s assets under management have dwindled to about $9 billion from a $38 billion peak in 2011. Most of what’s left belongs to Paulson himself.

Paulson’s share of the firm’s funds has grown in recent years as investors left and performance in several funds suffered. Paulson’s capital, and that of his internal staff, made up 90 percent or more of at least five of the firm’s funds, Bloomberg has reported. The funds affected by the current changes predominantly manage his personal money.

A couple funds are making money this year: Paulson’s Pure Spread fund, which makes less volatile bets around only announced deals, and the European Event Equities fund are both up 3 percent in the first two months of the year, another person said....MORE
If interested see also:
"Arbitrage: Historical Perspectives"
In Which Bloomberg's Matt Levine Goes All "Let's Use Words Correctly, Class" On Us
My Second-to-Last Comment on Izabella Kaminska at Tyler Cowen's Marginal Revolution
...People, people, people arbitrage opportunities have been disappearing for the past 150 years!
I guessing the two commenters didn't have the definition: "The simultaneous purchase and sale of the same instrument in different markets at different prices" pounded into their head so often their ears bled.
I did.
How many arbitrages do they think present themselves each year?

Spotting and acting on an arb is pure alpha and here is a dirty little secret:
The entire amount of alpha available to the entire hedge fund industry is only $30 billion per year....
... but one of these days I'll get around to posting on this perfect little arb where J.P. Morgan was willing to accept a measly $1000 profit per $1,000,000 traded because it was an honest-to-goodness arbitrage, not some "hedge", for, as we chant each morning, (all together now) "The only perfect hedge is at Sissinghurst"