Good piece in Marketwatch on two hedge funds that have done well taking the other side of the subrime bet. Both Paulson & Co. (run, ironically enough, by an ex-Bear guy) and Scion bet that the lowest quality subprime mortgages would see higher defaults than anyone expected; both have done so well that you can be sure they’re chanting “Don’t go! Don’t go” in front of their Bloombergs.
How well have they done? Well, Paulson & Co. is up a staggering 435% in the first nine months of 2007, an astounding figure for any fund, but double-astounding for a firm running $24-billion in assets.
Both Paulson and Scion now say they are winding down some of their negative bets in residential mortgage-backed securities, and they’re moving on to bets against corporate debt. Good to know.