NEW YORK (Reuters) - In April, John Paulson told some of his investors during a conference he held at the Aria hotel and casino in Las Vegas that he had been too optimistic about the timing of a rebound in the U.S. housing market.
He said it might be another year before the housing market began to roust itself from a long multi-year funk.
The famed hedge fund manager’s call on housing is proving costly for investors in his flagship $15 billion Advantage funds, which have taken a series of large bullish bets on housing and bank stocks. As of August 5, the two Advantage funds were down more than 20 percent with one down roughly 30 percent, investors say.
But Paulson’s poor sense of timing probably won’t have much impact on the much smaller group of investors who have committed money to the manager’s $350 million Real Estate Recovery Fund, which operates under a much longer investing horizon. That two-year-old fund is focussed on buying vacant land where local governments have approved the construction of residential homes but the developers have walked away.
To date, the real estate fund has acquired more than a half-dozen unbuilt housing developments in Colorado, Arizona, Florida and California on which some 20,000 homes can be built.
The fund, which often is paying as little 20 cents on the dollar for these suburban wastelands, operates with no borrowed money and expects to reap a windfall in four to seven years. By that time, Paulson is certain a housing rebound will be under way and there will be rich demand for so-called shovel ready housing complexes in suburban Denver or just outside of San Diego, California.
It’s Paulson most pure play on a revival in housing. But it’s a relatively low-risk one given the fund doesn’t invest in potentially volatile stocks in the way his ailing Advantage funds do.
And the real estate fund isn’t using borrowed money to pay dirt cheap prices for land in relatively attractive locales. Right now, however, its an investment opportunity that most of Paulson’s wealthy patrons are missing out on.
Reported by Matthew Goldstein; Editing by Claudia Parsons