Paulson cuts gold holding and reduces risk on hedge funds

John Paulson, the billionaire hedge fund manager, cut his holdings in a gold ETF during the third quarter.

According to regulatory filings released on Monday, Paulson sold a third of his holdings in the SPDR gold trust in Q3.

However, his $30bn Gold hedge fund was still the largest holder of the ETF at the end of September, with a stake worth $3.5bn at the current gold price of $1,779 an ounce, the Financial Times reports.

Paulson's Gold hedge fund, his smallest, has been a rare high spot for a manager facing severe losses in his flagship funds, returning 9.75% for the year to the end of October, according to investors.

He uses the ETF and other derivatives linked to the price of gold to allow his investors to denominate their holdings in the precious metal, rather than US dollars.

A person familiar with the firm said the sale may reflect the relative cost of different securities used to create the gold share class, rather than an overall reduction in Paulson's exposure to gold.

The filings also showed Paulson owned 1.8% of News Corp class B shares at the end of September, a stake worth $256m.

According to the Financial Times, the manager is now the third largest holder of voting rights in the media giant, behind the Murdoch family and Saudi Prince Alwaleed bin Talal, who controls 7%.

During the quarter, Paulson also reduced his stake in some companies that have contributed to losses at his hedge funds. He sold about a third of his stake in Hewlett-Packard, shares worth $230m, and cut his holdings of Wells Fargo and Citigroup by a similar amount, selling stock worth $496m.

However, he slightly increased his stake in Bank of America, bringing the value of his holding to $400m.

Paulson is also believed to have reduced risk in his hedge funds further as the European sovereign debt crisis worsens.

The firm is believed to have reduced net exposure in its main hedge funds to 30% from around 60% four months ago, according to Bloomberg.

Paulson is reported to have told investors at the firm's annual meeting it has reduced its bullish bets across all funds until there is more certainty Europe can contain the debt crisis.

The manager had been betting on an economic recovery by the end of 2012 with his bullishness on US banking stocks contributed to this year's losses.

His biggest funds, Advantage Plus and Advantage, which have $11bn in combined assets and aim to profit from corporate events such as takeovers and bankruptcies, fell 44% and 29% this year to the end of October, respectively. His Recovery fund slumped 25% in 2011, according to Bloomberg.

Armel Leslie, a spokesman for Paulson & Co., declined to comment on the annual meeting.