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Paulson Funds Hit Hard by Gold Selloff

Mr. John Paulson, who gained prominence by cashing in on a bet against the U.S. housing market, was hit hard by the September selloff in gold.   His hedge funds operated by Paulson & Co. fell sharply.  In 2007 and 2008, his firm scored $20 billion in profits by betting against subprime mortgages and financial shares.  Mr Paulson racked up $5 billion of personal gains.

His fund dedicated to gold investments lose 16.4% in September, which is worse than the 11% fall for gold prices.  Paulson gold fund now sports a gain of just over 1% in 2011, through September, compared with a 16% year-to-date gain in gold—a difference likely attributable to the fund's investment in gold-mining companies, whose shares haven't kept pace with gold's rise.

Mr. Paulson's Recovery fund, which wagers on investments deemed likely to do well as the U.S. economy improves, lost more than 14% in September and is down 31% in 2011.  Paulson also posted losses last month in the merger-focused fund.

The gold-denominated versions of these funds, which had been up for most of the year, now are down about 20%.

The firm's Paulson Advantage fund dropped 12.1%, leaving it down more than 32% this year. The Paulson Advantage Plus, which applies a layer of borrowed money to the firm's investments, tumbled 19.4% last month. That fund is down nearly 47% on the year.

The Advantage funds, the two largest in the Paulson stable, attracted a number of pension funds and institutional investors in recent years. Earlier this year, Paulson & Co. managed about $38 billion.  But after losses and redemptions, that figure now is $30 billion.

Mr. Paulson has clung to an optimistic view on the U.S. economy, a stance that has hurt him. Though he has done some selling recently, he has told investors that stocks remain cheap and there will be a recovery by the end of 2012.

In September, he said in a statement to The Wall Street Journal that despite his losses, he remained bullish on the stock market.