Wednesday, 18 April 2012

By Kelly Bit
  April 17 (Bloomberg) -- John Paulson, the billionaire
hedge-fund manager seeking to reverse record losses in 2011,
told investors he is shorting European sovereign bonds,
according to a person familiar with the matter.

   Paulson, 56, said during a call with investors that he is
also buying credit-default swaps on European debt, or protection
against the chance of default, said the person, who asked not to
be identified because the information is private. Spanish banks
are of particular concern as their holdings of the country’s
debt and client withdrawals make them overly dependent on
European Central Bank financing, Paulson told investors.

Paulson, who manages about $24 billion in his New York-
based firm Paulson & Co., lost 51 percent in one of his largest
hedge funds last year after making an ill-timed bet on a U.S.
economic recovery.
In February, he said that the euro is
“structurally flawed,” and will eventually fall apart,
according to a letter sent to investors.

   Concerns that Spain’s position will deteriorate amid the
sovereign-debt crisis in Europe have spurred a surge in the
nation’s borrowing costs this year. Credit-default swaps
insuring Spanish government debt rose yesterday to a record in
London, according to CMA, a market information firm in London,
signaling deterioration in investor perceptions of credit
quality. Yields on the country’s 10-year bonds climbed to the
highest level since Dec. 1 earlier yesterday.

 Spanish Banks

  Spanish banks’ borrowings from the ECB jumped by almost 50
percent in March, reaching the most on record, as lenders tap
emergency loans and channel some of it into sovereign debt
purchases, according to data from the Bank of Spain.

   Paulson became a billionaire in 2007 by betting against the
U.S. subprime mortgage market. Armel Leslie, a spokesman for
Paulson & Co., declined to comment on the hedge-fund manager’s
call with investors.

   Paulson told investors the firm formed risk oversight and
portfolio review committees during the first quarter. The
committees meet weekly in order to review the hedge fund’s
individual positions, the firm’s financing, regulatory matters
and other topics, the person said.

   At a recent meeting, one of the groups discussed the firm’s
investments in gold equities, which contributed to losses this
year through March for Paulson’s Gold Fund and Advantage funds.
The committee concluded that the firm’s weighting in stocks tied
to the metal should remain unchanged because they are
historically inexpensive, although there may be alterations to
the size of individual positions, the person said.

   Paulson said he took a portion of his own money out of the
$6.8 billion Credit Opportunities Fund and put it into the $1.2
billion Gold Fund, which can buy derivatives and other gold-
related investments, and the $8.3 billion Advantage funds, which
seek to profit from corporate events such as takeovers and
bankruptcies, according to the person and a year-end letter that
the firm sent to investors.

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