Greek banks give Paulson's Recovery Funds a boost in Q1

By Svea Herbst-Bayliss

Gains in Greek banks' shares gave billionaire investor John Paulson's $3.2 billion Recovery Funds a lift during the first quarter, and future returns are expected to keep climbing as the housing and real estate markets continue to recover.

The Recovery Fund LP gained 5.58 percent in the first three months of 2014, thanks in part to strong returns on Greece's Alpha Bank and Piraeus Bank, Paulson told investors in his latest funds update, which was seen by Reuters.

The average hedge fund gained only 1.07 percent during the first quarter. Hedge funds often take a few weeks to assemble their quarterly reports. Paulson sent his out to investors in the last days.

Paulson, whose investments have been widely followed ever since the firm earned billions by betting against the overheated mortgage market, bought into the Greek banks a year ago when they needed a capital injection. He said that he expects "there to be new opportunities" in Europe as the region emerges from its crisis.

Paulson & Co manages $22 billion, making it one of the hedge fund industry's biggest firms, and thanks to its strong returns last year, Paulson himself earned $2.3 billion last year, according to Institutional Investor's annual ranking.

The Recovery Funds were launched during the financial crisis with an eye to investing in sectors like banking, hotels and real estate that would grow as the economy recovers.

Paulson also said that the funds invested in two private placements of auto lender Ally Financial, which had been General Motors' financing arm, and that he expects earnings to increase "substantially" over the next years. Earlier this month, the company reported a smaller first-quarter profit as it exited...