John Paulson made $3.7 billion in 2007 betting on the housing collapse. He made a similarly staggering sum last year. But only now, he says, is he seeing the money-making opportunity of a lifetime:
“The decline in the market has created a very good buying opportunity,” Paulson, 53, whose New York-based Paulson & Co. oversees about $30 billion, said in a speech at a hedge-fund seminar hosted by Societe Generale and Lyxor Asset Management in Tokyo today. “Distressed opportunity in the U.S. is shaping up to be the best opportunity in a lifetime.”
[What is “distressed opportunity,” you ask, eager to rush out and get some for yourself? It means buying the debt of crappy companies at pennies on the dollar. It’s not for the faint of heart, lazy, or poor, though. Many of the companies Paulson buys are or will be bankrupt, and he’ll be hiring legal teams to battle for their assets in court.]
Paulson said he’s focused on assets such as mortgages and debt from bankrupt companies, while in the equities markets he cited the utilities, consumer staples and pharmaceutical industries. Financial stocks remain risky, Paulson said.
In the 15 years since starting its first funds, Paulson & Co.’s one down year was 1998. All his funds were profitable in 2008, with the flagship fund returning about 38 per cent, compared with a loss of 19 per cent for hedge funds worldwide on average. The 2008 returns came after his funds made more than $3 billion for the firm in 2007 by anticipating the collapse of the U.S. housing market and subprime mortgages.
And is Paulson buying into the happy second-half recovery story? Nope:
“In 2009, we expect this recession is going to be deeper and longer than consensus estimates,” Paulson said. “We don’t think we’re through the banking crisis yet. We think that in many cases, losses the banks will experience will exceed their common equities.”