Paulson fund down nearly 50% on wrong recovery call

One of legendary hedge fund manager John Paulson's flagship portfolios is down almost 50% in 2011.

Paulson, who made billions betting on a collapse in US house prices, has been hit badly by backing a booming economic recovery which has not materialised, the Telegraph reports. 

Calls the US economy and housing market would bounce back strongly have contributed to one of his flagship funds being almost 50% down for the year so far.

Paulson & Co, his New York-based hedge fund with $30bn (£19bn) under management, has told clients its Advantage Plus fund dropped almost 20% in September, leaving it off 46.73% for the year, sources told Reuters.

In comparison, the average hedge fund lost 2.81% last month leaving it down 4.74% for the year, according to data from Hedge Fund Research.

Paulson's famous bet on a US housing crash helped him generate a personal fortune of around $15.5bn.

But his optimism about the US and the wider economic recovery has hit profits. He invested heavily in America's banking sector, where share prices have slumped in recent months.

Earlier this year he also suffered heavy losses over a stake in Sino-Forest, a Chinese timber company, when fraud allegations caused its share price to collapse.