US sub-prime: Hedge funds make light of sub-prime woes
Press reports that hedge funds will be the hardest hit by the sub-prime mortgages free fall in the US have been proved wrong by Paulson and Co. According to sources, the $7 billion merger arbitrage and event-driven hedge fund has produced 100% net returns year to date, and 60% in February alone on the back of sub-prime bets.
One investor says founder John Paulson voiced his negative views in November and has been heavily shorting the ABX sub-prime index. The index measures the cost of insuring against defaults on sub-prime bonds.
Paulson is not alone in generating profit from the sub-prime market collapse. One investor says he knows of a hedge fund that put on a $2 billion trade in February, making $300 million in that month alone.
Andy Chow is a portfolio manager at SCM Advisors, a money manager located in San Francisco. He says hedge fund managers have rapidly come up to speed in understanding the sub-prime mortgage market and have been successful in finding opportunities.