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.

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.”