A single hedge fund has made a gain of more than
U.S. hedge fund manager Paulson & Co. has turned an investment of almost
Four other hedge fund managers - Harbinger Capital Partners, Balestra Capital, Scion Funds and Peloton Partners - have also made substantial gains from subprime, with Harbinger's fund rising just under 100% for the year to date, according to an investor in the fund.
Paulson's Credit Opportunities fund has made a gross return of 690% and a net return, after fees, of 551% for the first 10 months of the year, according to a source close to the firm. The firm's Credit Opportunities II fund has made a gross return of 410% and a net 328%.
The firm began betting on subprime in the middle of last year. Banks were offering credit default swaps, a kind of insurance contract, on the BBB-rated tranches of securities backed by U.S. subprime mortgages. The buyer had to pay a premium of 1% a year to the banks, which undertook to pay out the value of any falls in the BBB tranches.