Wednesday, November 19, 2008

John Paulson buys mortgage securities

Hedge fund manager and John Paulson is now buying mortgage-backed securities for his newly launced Paulson Recovery Fund.

This latest move brings Paulson & Co.'s involvement in the mortgage-backed market full circle. Back in 2007, Paulson and his investors reaped a windfall return from the firm's short positions in subprime mortgage bonds.

More on this story from the Financial Times:

"John Paulson, the hedge fund manager who was called before Congress last week to discuss the big profits he made by foreseeing the collapse of the subprime mortgage market, has started to buy securities backed by residential mortgages.

Mr Paulson's move marks the latest example of a famously bearish investor shifting gears to profit from depressed prices in the global credit markets.

US residential mortgage securities fell in value last week after Hank Paulson, Treasury secret-ary, said that the federal government had decided against buying toxic assets as part of its $700bn (£466bn) troubled asset relief programme (Tarp).

John Paulson, who is not related to the Treasury secretary, has told his investors that he started buying troubled mortgage-backed securities at the end of last week, hoping to capitalise on price falls that followed the Treasury announcement."

As we noted in our recent post, "Seasoned investors search for value", Paulson's firm had been readying themselves to begin buying through their recently launced Paulson Recovery Fund.

Now that the starting pistol has been fired in this mortgage-backed turnaround race, we'll see how many investment groups decide to follow Paulson & Co.'s lead and start buying these well-shunned securities.

Related articles and posts:

1. John Paulson buys mortgages after US drops TARP purchases - Bloomberg.

2. Excellent timing: John Paulson - Finance Trends.

3. Paulson & Co. push subprime bets - Finance Trends.

4. Seasoned investors search for values - Finance Trends.