John Paulson’a main fund is down considerably this year — around 20% YTD as of June– and according to one man, his recent mistakes put him at risk of proving that he’s a one hit wonder.
Keith McCullough, who used to run a hedge fund and now runs HedgeEye Risk Management, said on CNBC that because John Paulson is doing all the wrong things in the global macro fund, as evidenced by the shoddy returns, things are not looking good for his reputation.
For one, he says John Paulson’s latest move from 80% to 60% net long is “not running a hedge fund” and that he still has to prove “big time” that he knows global macro. Paulson of course got the same criticism when he switched from a M&A strategy to shorting the housing market.
Another stinger: “He is not George Soros.”
We’ll preface this with the same, “Ok Keith,” we’ll end it with.
McCullough, who used to work at Magnetar and Citadel, said on CNBC:
“I think if you take a step back and you look at Paulson in particular, he’s made some very classic mistakes. He doesn’t have a lot of experience managing global macro market cycles, if that’s what you want to call it. He nailed the big one and that’s why he runs so much money. But running 81% net long and getting a couple really big things wrong which is housing in particular and the global economic growth scenario, that tattooed him. And now he has to admit it and he’s selling low after buying high, which is not good either.”
“You can’t be running even 60% net long, I mean you’ve got to get your exposure tight. Running a levered long fund is not a hedge fund, so I think his investors are probably putting pressure on him which they rightly should… I think he’s coming back to reality.”
“He has to prove –big time– that he has a global macro risk management process that is repeatable. I do not see that in him yet, That does not mean that he can’t get it right, but he is not George Soros. And even Soros, as you’ve seen, has gone to 75% cash so when Soros is doing that and Paulson is still 60% net long with some leverage, he’s got some explaining to do.”
Here’s the video: