Savvy bets on financials likely boost John Paulson fund

BOSTON Wed Oct 1, 2008 7:31pm BST

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BOSTON (Reuters) - Bets that many British bank stocks would fall likely helped hedge fund manager John Paulson extend his funds' gains in September, hedge fund industry analysts said.

Paulson, among the first investors to bet that housing prices could decline on a national basis, is posting comfortable gains this year as most hedge funds suffer their worst-ever returns.

Through the end of August, Paulson's $7.4 billion (4.1 billion pounds) Paulson Advantage Plus fund returned 19.43 percent. Paulson, who turned his medium-sized firm into a $33 billion industry giant on the back of savvy bets plus new money from investors, will describe September's returns to clients in a few days.

Last year, Paulson's Credit Opportunities Fund returned 589.62 percent. In the first eight months of 2008, the fund returned roughly 12.5 percent, a person familiar with the data said.

Outsiders already got a small taste of Paulson's expected September gains however when the New York-based hedge fund manager told UK regulators late last month that he held a $1.9 billion bet against local banks. These bets likely paid off big as financial stocks tumbled around the world.

Paulson's gains are rare this year as the average fund has lost roughly 10 percent this year, according to data from Hedge Fund Research. Investors said they are bracing for the third quarter to be the worst ever with big names like Kenneth Griffin's Citadel Investment Group, James Pallotta's Raptor Global Fund and Daniel Loeb's Third Point Offshore Fund all nursing losses for the year.

(Reporting by Svea Herbst-Bayliss; Editing by Tim Dobbyn)

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