Chinese Timber Pummels Paulson’s Biggest Fund

(July 7, 2011) — John Paulson — founder and president of New-York based hedge fund Paulson & Co., which manages $37 billion overall — lost more than 11% on his biggest fund in June, hurt by major losses as it sold off Chinese forestry company Sino-Forest.

The timber losses left Paulson’s Advantage Plus Fund down 11.54% in June. The fund’s gold-denominated share class dropped 11.77% during the month.

The Chinese forestry company, Sino-Forest Corp., has been accused of overstating its timberland holdings and production. The firm dropped about 73% from its closing price on June 1. Paulson & Co. subsequently sold the entire stake in Sino-Forest as of June 17.

The big declines experienced by Paulson’s funds reflect difficult times for hedge funds in June, as they faced hard times navigating events such as Japan’s earthquake and nuclear disaster, volatility in commodity prices, and worries over a Greek default.

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Despite the widespread popularity of the asset class particularly among institutional investors, the Dow Jones Credit Suisse Core Hedge Fund Index lost 1.95% last month, leaving the index down 1.1% on the year. The month of May shared similar difficulties, when the index fell 1.71%.

Oliver Schupp, President of Credit Suisse Index Co., LLC, said in a statement, “Headlines over Eurozone debt concerns dominated markets and set the tone for a second consecutive negative month of hedge fund performance in June…A lack of fundamentally driven trends hurt many managers, with Global Macro experiencing the most significant decline, falling 3.12%. Fixed Income Arbitrage was the month’s only bright spot. The sector gained 0.20% as managers benefited from increased interest rate volatility and widening swap spreads. The strategy remains up 2.38% year-to-date.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(July 7, 2011) – Private equity giant Blackstone Group’s (BX) most recent buyout fund has exceeded $16 billion in size, the Wall Street Journal reports. The fund, originally projected to reach around $15 billion by President Tony James when it was announced last year, has exceeded expectations and is now expected to reach as much as $16.5 billion before it closes.

The fund is the largest buyout fund since the recent financial crisis and the sixth largest of all time, according to the WSJ. Blackstone’s BCP V, which closed in 2006, was the largest buyout fund ever at $21.7 billion – a figure over 1.5 times the fund’s goal.

While this most recent fund will not exceed expectations so lucratively, it nonetheless instills optimism in post-crisis investment. Especially encouraging is the fact that institutional investors comprise 93% of Blackstone’s PE limited partners, according to the company’s website. The success of this fund, if nothing else, serves as a sign of increasing confidence among institutional investors.

The success of the fund did not come easily – Blackstone supposedly lowered its threshold investment level that receives preferential terms from $1 billion to $500 million to encourage investment. Additionally, as much as 20% of the fund investment comes from East Asia. The WSJ reports that Blackstone executives did extensive work in Southeast Asia with both government and corporate pension funds to raise capital, continuing a surge of PE in Asia.

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The fund announcement continues a wave of good news for private equity firms, who struggled mightily to raise funds in 2009 and 2010. A Preqin survey of institutional investors and other LPs from December 2010 indicated that 54% of LPs planned to increase funding commitments in 2011, while only 15% intended to decrease funding.

Blackstone is not alone in its recent success with a new fund. Swedish PE firm EQT Partners has already raised €3.5 billion and is considering raising its fundraising goal from €4.25 billion to €4.75 billion. EQT’s last fund, EQT V, launched in 2006 and closed at €4.25 billion. Brazil’s BTG Pactual recently finished raising $1.6 billion for a PE fund – the third largest Latin American buyout fund ever.

Blackstone’s success comes at an important time for the financial services company, whose share price had fallen from $19.49 in late April to $16.02 in late June. Early indications are for a positive market reaction to the announcement of the fund, whose share price has increased by as much as $0.61 to $17.25 since yesterday.

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