Paulson hurt by Sino-Forest investment
DAVID BERMAN
RTGAM






John Paulson's exit from Sino-Forest Corp. is devastating news for the embattled Chinese forestry company because the famous hedge fund manager was one of the big reasons for investors to stick around: If Mr. Paulson stood by the company, then maybe it was a good investment.

The bigger news here, though, is what the investment will do to Mr. Paulson's credibility as a top-notch hedge fund manager. As Bloomberg News reported, his Sino-Forest investment alone may blow a $720-million (U.S.) hole in his hedge fund. But to make matters even more painful, Mr. Paulson has also been on the wrong side of bets on big U.S. banks, in the hopes of an economic turnaround.

Citigroup Inc. is the fund's third-largest holding and Bank of America Corp. is the fund's fifth largest holding, valued together at nearly $3-billion (U.S.). Yet, the shares have been slumping in 2011 as investors remain unsure about the economic backdrop and regulatory changes. Citigroup has fallen nearly 18 per cent, while Bank of America has fallen about 19 per cent.

According to Bloomberg, Mr. Paulson's largest fund has fallen about 20 per cent this year. (Mean reversion can be very mean indeed.)

Either his investing acumen or his timing is off, which must hurt given that he made a reported $15-billion betting against the U.S. housing market in 2007 before the real estate bust - giving him a larger-than-life reputation for making contrarian bets that pay off big.

Mr. Paulson remains a big reason why many gold investors remain wedded to the precious metal. Through Paulson & Co. he is the biggest investor in the SPDR Gold Trust exchange traded fund, which reflects the price of gold bullion. His holdings consist of 31.5 million units, valued at $4.7-billion.