MarketWatch reports that the Paulson Credit Opportunities fund, which focuses on distress in the mortgage markets, earned 26.7% in August, which brings its returns year to date to 410%.
A sister fund pursuing broadly the same strategy but started a bit later, Paulson Credit Opportunities II, was up 32% in August and 230% for the year. MarketWatch notes:
Paulson has been among the most aggressive hedge funds betting against the subprime mortgage business, which caters to poorer borrowers with blemished credit records. As delinquencies have increased and turmoil has spread across other parts of the credit market, some hedge funds have done well, while others have collapsed.
Paulson’s flagship merger arbitrage fund didn’t do as well during August, rising 0.56%. Still, that fund is up more than 43% so far this year, the person noted
This Paulson is the same Paulson & Co. that threatened to sue Bear Stearns for planning to substitute assets in one of its failed hedge funds. It was hard to infer from press reports what Paulson’s allegation was, but it seemed that the Bear move was intended to improve the quality of the collateral, which in turn would improve the value of some credit default swaps, and Paulson was apparently on the short side of those swaps.
With performance like that, the fund could afford to be less bloody-minded. But it’s probably being so bloody-minded that has generated those results.