John Paulson Dumps Biggest Banks, Doubles-Down on Gold

BOSTON ( TheStreet) -- Paulson & Co. founder John Paulson wants to put 2011 behind him, given the huge losses his hedge fund amassed. The billionaire investor is seeking to rebound from an atrocious performance with new investments in companies including Delphi Automotive ( DLPH) and United Rentals ( URI).

After earning a record $5 billion for a hedge fund manager with the help of gold and bank stocks, Paulson is now slashing some of those holdings to reduce exposure. His flagship Advantage Plus Fund plummeted 51% last year, according to several media reports that cite investors in the fund.

John Paulson (Paulson & Co.)

Last July, Paulson announced during an investor call that he was reducing his net long exposure to 60% from 81% previously, according to a Reuters report, with the hedge fund manager saying he "cannot operate the fund at level. I'd like to bring the risk down further to about 50%." He admitted he was "too aggressive" with some stock bets, the report said.

Paulson took part in some dramatic sales during the fourth quarter, unloading his entire position in stocks like Citigroup ( C), Bank of America ( BAC) and Hewlett-Packard ( HPQ), among others.

Hedge fund and investment managers who manage more than $100 million are required to disclose their equity holdings, options and convertible debt on a Form 13F filed to the Securities and Exchange Commission within 45 days of the end of a quarter. Funds aren't required to report short positions betting on declines. Paulson ended the third quarter with 69 reported holdings with a market value of $13.8 billion.

>>View John Paulson's Portfolio

Among other sales, Paulson slashed his holding in the SPDR Gold Trust ETF ( GLD), dropping his position by almost 3 million shares to 17.3 million. The gold ETF still remains as Paulson's largest disclosed holding with a market value of $2.6 billion as of Dec. 31.

Paulson & Co. also cut its holdings in stocks like Transocean ( RIG), Wells Fargo ( WFC), Capital One ( COF) and SunTrust Banks ( STI), among others.

Paulson wasn't selling everything in his portfolio. The embattled fund manager increased his stake in 10 companies, including several gold-related companies like Randgold Resources ( GOLD), Iamgold ( IAG) and Barrick Gold ( ABX).

Most of Paulson's buys, meanwhile, were M&A targets, some of which have already been gobbled up by buyers. Paulson initiated new stakes during the quarter in Pharmasset ( VRUS) and El Paso ( EP) while he boosted established positions in Motorola Mobility ( MMI) and Goodrich ( GR).

Two of Paulson's other new stakes were in Delphi Automotive, which went public again in November, and United Rentals, which announced in November that it would merge with RSC Holdings ( RRR). Paulson's stake in Delphi was about 15.7% of shares outstanding as of Dec. 31 with a market value of $1.1 billion, making it Paulson's third largest disclosed holding.

Perhaps most notably, Paulson sold 1.4 million shares of Hartford Financial ( HIG), his portfolio's fifth largest holding with a market value of $608 million as of Dec. 31. The stake is worth 8% of Hartford's outstanding shares, and Paulson is going hostile in order to have the financial company unlock value.

After confronting Hartford CEO Liam McGee on the company's recent earnings call, Paulson penned a letter to McGee calling for the company to spin off its property and casual business.

-- Written by Robert Holmes in Boston.

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