(Bloomberg News) John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, lost 11 percent in the first week of August in his largest hedge fund, according to a person familiar with the firm.
The decline leaves the Advantage Plus Fund, which tries to profit from corporate events such as takeovers and bankruptcies, down 31 percent since the start of the year, said the person, who asked not to be named because the fund is private.
Paulson, 55, has scaled back bullish bets after losses this year and told clients in June that he reduced his stake in Bank of America Corp., where he was the ninth-biggest holder with almost 124 million shares as of March 31. The bank's shares have tumbled 47 percent since then. Paulson would have to return about 45 percent in the remainder of the year to break even in the Advantage Plus Fund.
"He's in an awkward position because he doesn't have a lot of time to restore that capital," said Geoff Bobroff, who runs a money management consulting firm in East Greenwich, Rhode Island. "The only way to do it is to make significant bets, and he has to hope they are right."
Financial shares have been a big part of Paulson's recovery bet. He told investors at the start of the year that U.S. economic growth should continue in 2011, and that over the past 20 years, the average length of expansion after each of the previous two recessions had been 32 quarters.
That would be the "likely scenario going forward," he said in a January letter to investors.
The wager has hurt him so far this year. Of Paulson's top 10 stock holdings as of the end of first quarter, half were financial services companies.
Citigroup Inc., his third-biggest stock holding, has tumbled 37 percent since the start of the year. Hartford Financial Services Group Inc., his sixth-biggest stake, dropped 28 percent and Suntrust Banks Inc., his eighth-biggest, has plummeted 37 percent.
Last year, financial stocks helped his largest fund end the year up 17 percent, after being down 11 percent at the end of August. The Citibank stake alone added $1 billion in profits over 18 months, the firm said in January.