A hedge fund billionaire who was an economic adviser to US president-elect Donald Trump during the campaign has taken a position in a fast-growing Chinese ride-sharing company that recently signed a deal to acquire Uber Technologies Inc’s operations in China.
John Paulson, who made US$15 billion betting against the housing market before the financial crisis, told his investors on Wednesday that at least one of his portfolios had taken an investment stake in Didi Chuxing (滴滴出行), a privately owned Chinese company, said people briefed on the matter who were not authorized to speak publicly.
The investment, by Paulson’s Advantage funds, is about 7 percent of the assets of those portfolios, he told investors, the people said.
Didi Chuxing, which has backing from Alibaba Group Holding Ltd (阿里巴巴) and Apple Inc, could prepare for an initial public offering in the next year, according to news reports.
In August, Didi struck a deal with its main rival, US ride-hailing giant Uber, to acquire Uber China in a transaction that created a company some valued at US$35 billion.
Paulson disclosed the investment in Didi at a meeting with investors on Wednesday in New York City during which he apologized for the overall poor performance of his US$1.2 billion Advantage funds.
His Paulson Advantage fund is down about 22 percent this year, and a leveraged version called Paulson Advantage Plus is down about 26 percent.
In making the investment, Paulson is joining several prominent hedge funds and investment firms including two Tiger Cubs — a nickname for firms founded by proteges of hedge fund manager Julian Robertson and his Tiger Management.
One of those firms, Coatue Management, founded by Philippe Laffont, made a US$2 billion investment in July last year, according to the private equity data site CrunchBase.
Chase Coleman’s Tiger Global has also backed the Chinese company, as has Daniel Loeb’s Third Point.
While Didi has been an alluring investment because of the size of the Chinese market and the company’s ability to knock out the competition by buying its two biggest local competitors — Uber’s China unit and Kuaidi Dache (快的打車) — it could take years for the company to make money.
This could make it difficult for Paulson as he faces losses at his firm and investors demand their money back.
Didi faces challenges, too. In September, Chinese authorities said they were investigating antitrust concerns with Uber’s planned sale of its Chinese operations to Didi.
In recent years, Paulson has struggled to regain the magic that made him one of the most envied hedge fund managers on Wall Street.
He got rich betting on the collapse of the subprime housing market by shorting some of the bonds backed by mortgages issued to consumers with checkered credit histories.
This success — which gave him and his investors a US$15 billion payday — helped him attract investment from a wide array of investors.
In a financial disclosure form last year, Trump reported being an investor in three of Paulson’s funds, including Advantage Plus. It is not known if he is still an investor.
Trump in August named Paulson as one of his economic advisers. Paulson was one of the first people on Wall Street to lend support to Trump’s presidential campaign. In May, he hosted a fundraiser at Le Cirque in Manhattan where tickets for hosts were US$250,000 a couple.
However, years of poor performance and investor redemptions have taken a toll on his Paulson & Co hedge fund firm. Total assets under management have plunged to about US$12 billion from US$36 billion in 2011.
One of the firm’s big losing bets this year is Valeant Pharmaceuticals Inc. Its stock has fallen to US$18 a share this year from about US$100.
Paulson has had a mixed record investing in China.
His firm invested in Alibaba, the giant search engine company, before its public offering and made money on it, but he stumbled in 2011 on a stake in Sino Forest Corp (嘉漢林業), a forestry company that lost most of its value after Carson Block, a short seller, issued a highly critical report that questioned its accounting practices.
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