market folly

Fresh off of our unofficial 'John Paulson' day on the blog yesterday, we're back again to highlight that Paulson will be going forwards with his Real Estate Recovery fund that will be aimed on investing in distressed assets. Just yesterday we examined Paulson's equity holdings, and now it looks like he's getting ready to make a splash in other asset classes. The fund will manage a few hundred million in its initial capacity (though no cap has been set) and will be managed by Mike Barr. Mike was previously at Lehman Brothers where he has experience in real estate and private equity. Paulson's initial goal is to run the fund for 7 years, investing in both residential and commercial properties. This news comes fresh off the new mortgage-market proposal by Paulson's colleague and ex-portfolio manager, Paolo Pellegrini. The two of them undoubtedly have compelling ideas on how to solve the crisis.

This fund isn't really new news, as we had heard of his proposal a while ago. However, we're finally getting concrete details and the 'green light' that it is ready to go. With his front-row seat to the mortgage and housing crisis, Paulson's timing call might prove to be very prudent. He has played the market perfectly thus far and has already gotten constructive on the sector by buying up the types of assets he was previously shorting (mortgage backed securities). Now, however, he is taking his constructiveness to a new level: by buying outright real estate. Obviously, he has a longer-term time frame in mind and will take his time sorting and sifting through the right deals. But, the fact that he is getting constructive in this arena cannot be ignored.

At the same time, it is also interesting to note his large purchase of gold which we just detailed. The hedge fund firm has said it is merely a hedge for them, as they have a share class denominated in gold. However, his large stakes in both gold and numerous gold miners is intriguing. Paulson may be getting constructive in the real estate arena, but he must still be overall cautious on the economy, the US dollar, or something of the sort. After all, why buy so much gold and so many miners? Either way, it's always interesting to note his major moves and this new fund certainly is classified as such.

Paulson's hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. Check out his recent portfolio movements.