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From Trader Daily - The Best Trades of 2007
Trade of the Year / John Paulson, Paulson Credit Opportunities
Paulson’s subprime play wasn’t just the trade of the year - it might well have been the greatest trade of all time.
How massively did the 51-year-old Manhattan-based portfolio manager’s short subprime play pay off ? Consider that Paulson
& Co.’s four “Credit Opportunities” funds (the largest, for offshore clients, is Paulson Credit Opportunities Ltd.; the others are
Paulson Credit Opportunities II Ltd., Paulson Credit Opportunities LP and Paulson Credit Opportunities II LP) started the year
with a combined $1 billion.The standout Credit Opportunities LP fund returned 590 percent in 2007. At year’s end, the
entire quartet totaled roughly $9 billion. Paulson’s firm, which runs 12 funds altogether - including a series of merger-
arbitrage and event-driven strategies - started the year with a combined $7 billion in assets under management; it was
expected to finish the year having quadrupled that. The trade-of-the-year debate is over: All hail John Paulson. In the four
years Trader Monthly has been tracking trades - the four most lucrative in history - Paulson’s haul ranks as the largest
profit ever logged.
Paulson and Paolo Pellegrini, co-portfolio manager for the firm’s credit strategies, determined in 2006 that the U.S.
housing bubble was ready to pop, a projection based on meticulous proprietary research. Paulson and Pellegrini then
skinned the subprime cat two ways, via an ABX index position and by shorting individual CDO names. Their real score came
through the second approach, which involved a huge purchase of credit default swaps tied to certain handpicked CDOs;
Paulson homed in on the most troubled mortgage pools, regardless of rating-agency or Wall Street assurances. The value of
the CDS instruments he amassed went through the roof when the CDOs’ value plummeted as subprime borrowers, many with
adjustable-rate hikes kicking in, began to default.
Trade of the Year (Runner Up) / Greg Lippmann, Deutsche Bank
It can’t have been easy for Deutsche Bank’s Greg Lippmann to rage against the very mortgage-backed-securities machine
being fueled, in large part, by his employer. But that’s just what the bank’s headstrong 38-year-old global chief of ABS/CDO
trading did in 2007. He and his team (analyst Eugene Xu was singled out by some on the Street as having played an
important role) not only endured blowback from DB colleagues who were orchestrating a late charge into the CDO market; he
also personally helped engineer the standardized credit-derivatives contracts with which his game of housing-bubble
blackjack was played. In the first quarter of ‘07, the Lippmann-led ABS squad reportedly hauled in a half-billion-dollar profit
when most everyone else on Wall Street was choking.
Trade of the Year (Runner Up) / Andrew Lahde, Lahde Capital
After just one year in business, Lahde’s firm, Santa Monica, California-based Lahde Capital, is giving money back to
investors as his dedicated short subprime vehicle (established in December 2006 to capitalize on imminent subprime woe,
and which has since closed) achieved returns in excess of 1,000 percent, turning a grubstake of $5 million into $50
million. Lahde’s admirers liken his trade to John Paulson’s both because of its shrewd implementation (using credit default
swaps) and its low inherent risk.
Long Equity Trade of the Year / Atticus Capital - Freeport-McMoRan
Predicting a copper-supply shortfall, Atticus PMs Barakett and David Slager made a move three years ago to acquire a
roughly $29 million stake in Phelps Dodge. When that mining outfit was acquired by Freeport-McMoRan (a deal announced in
November 2006), Atticus was its largest shareholder. The transaction paid, per share, $88 cash and an additional two-thirds
of a share of FCX stock. FCX continued to climb higher and higher throughout 2007, as demand for copper surged in
developing countries and supply constraints persisted. As of the end of 2007, the Atticus position was worth around $3.1
billion.
Equity Short of the Year / Bill Ackman, Pershing Square - MBIA
Two years ago, Pershing Square founder Bill Ackman began an aggressive campaign to crush MBIA, shorting the stock in the
low 60s while buying CDS instruments pegged to the bond insurer’s holding company.
A source familiar with Ackman’s game plan insists he intends to take this trade the entire length of the field, not letting up until
MBIA files for bankruptcy and his CDS spreads skyrocket even higher. When it’s all over (as of press time, the scenario was
still playing out), Ackman’s fund stands to reap as much as $3 billion. Talk about riding your winners.
Currency Trade of the Year / Greg Cotter, Tri Global FX
Cotter began betting on a yen rebound in early June, suffering some initial short-term pain as the euro and pound rose to
highs against the yen not seen in decades. But as the credit crisis mounted, the yen carry trade began to unravel faster
than a tattered kimono. Cotter aggressively bought more as everyone else got crushed. Not since the Russian
debt default of 1998 had Japan’s currency shown so much strength. In 2007, Cotter’s $60 million Metro Forex managed-
account program was up 39 percent and ranks as one of the top 20 CTA Performers in the Barclay Managed Funds Report.
Source : From Trader Daily - the best trades of 2007
For the full article : click here
Trade of the Year / John Paulson, Paulson Credit Opportunities
Paulson’s subprime play wasn’t just the trade of the year - it might well have been the greatest trade of all time.
How massively did the 51-year-old Manhattan-based portfolio manager’s short subprime play pay off ? Consider that Paulson
& Co.’s four “Credit Opportunities” funds (the largest, for offshore clients, is Paulson Credit Opportunities Ltd.; the others are
Paulson Credit Opportunities II Ltd., Paulson Credit Opportunities LP and Paulson Credit Opportunities II LP) started the year
with a combined $1 billion.The standout Credit Opportunities LP fund returned 590 percent in 2007. At year’s end, the
entire quartet totaled roughly $9 billion. Paulson’s firm, which runs 12 funds altogether - including a series of merger-
arbitrage and event-driven strategies - started the year with a combined $7 billion in assets under management; it was
expected to finish the year having quadrupled that. The trade-of-the-year debate is over: All hail John Paulson. In the four
years Trader Monthly has been tracking trades - the four most lucrative in history - Paulson’s haul ranks as the largest
profit ever logged.
Paulson and Paolo Pellegrini, co-portfolio manager for the firm’s credit strategies, determined in 2006 that the U.S.
housing bubble was ready to pop, a projection based on meticulous proprietary research. Paulson and Pellegrini then
skinned the subprime cat two ways, via an ABX index position and by shorting individual CDO names. Their real score came
through the second approach, which involved a huge purchase of credit default swaps tied to certain handpicked CDOs;
Paulson homed in on the most troubled mortgage pools, regardless of rating-agency or Wall Street assurances. The value of
the CDS instruments he amassed went through the roof when the CDOs’ value plummeted as subprime borrowers, many with
adjustable-rate hikes kicking in, began to default.
Trade of the Year (Runner Up) / Greg Lippmann, Deutsche Bank
It can’t have been easy for Deutsche Bank’s Greg Lippmann to rage against the very mortgage-backed-securities machine
being fueled, in large part, by his employer. But that’s just what the bank’s headstrong 38-year-old global chief of ABS/CDO
trading did in 2007. He and his team (analyst Eugene Xu was singled out by some on the Street as having played an
important role) not only endured blowback from DB colleagues who were orchestrating a late charge into the CDO market; he
also personally helped engineer the standardized credit-derivatives contracts with which his game of housing-bubble
blackjack was played. In the first quarter of ‘07, the Lippmann-led ABS squad reportedly hauled in a half-billion-dollar profit
when most everyone else on Wall Street was choking.
Trade of the Year (Runner Up) / Andrew Lahde, Lahde Capital
After just one year in business, Lahde’s firm, Santa Monica, California-based Lahde Capital, is giving money back to
investors as his dedicated short subprime vehicle (established in December 2006 to capitalize on imminent subprime woe,
and which has since closed) achieved returns in excess of 1,000 percent, turning a grubstake of $5 million into $50
million. Lahde’s admirers liken his trade to John Paulson’s both because of its shrewd implementation (using credit default
swaps) and its low inherent risk.
Long Equity Trade of the Year / Atticus Capital - Freeport-McMoRan
Predicting a copper-supply shortfall, Atticus PMs Barakett and David Slager made a move three years ago to acquire a
roughly $29 million stake in Phelps Dodge. When that mining outfit was acquired by Freeport-McMoRan (a deal announced in
November 2006), Atticus was its largest shareholder. The transaction paid, per share, $88 cash and an additional two-thirds
of a share of FCX stock. FCX continued to climb higher and higher throughout 2007, as demand for copper surged in
developing countries and supply constraints persisted. As of the end of 2007, the Atticus position was worth around $3.1
billion.
Equity Short of the Year / Bill Ackman, Pershing Square - MBIA
Two years ago, Pershing Square founder Bill Ackman began an aggressive campaign to crush MBIA, shorting the stock in the
low 60s while buying CDS instruments pegged to the bond insurer’s holding company.
A source familiar with Ackman’s game plan insists he intends to take this trade the entire length of the field, not letting up until
MBIA files for bankruptcy and his CDS spreads skyrocket even higher. When it’s all over (as of press time, the scenario was
still playing out), Ackman’s fund stands to reap as much as $3 billion. Talk about riding your winners.
Currency Trade of the Year / Greg Cotter, Tri Global FX
Cotter began betting on a yen rebound in early June, suffering some initial short-term pain as the euro and pound rose to
highs against the yen not seen in decades. But as the credit crisis mounted, the yen carry trade began to unravel faster
than a tattered kimono. Cotter aggressively bought more as everyone else got crushed. Not since the Russian
debt default of 1998 had Japan’s currency shown so much strength. In 2007, Cotter’s $60 million Metro Forex managed-
account program was up 39 percent and ranks as one of the top 20 CTA Performers in the Barclay Managed Funds Report.
Source : From Trader Daily - the best trades of 2007
For the full article : click here
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