The billionaire investor, who has been watched closely ever since he made billions before the financial crisis and lost billions later, also said he would stop reporting his gold fund's returns to all clients in an effort to shift the spotlight away from his smallest fund to his bigger and better performing portfolios.
In a letter to clients, Paulson & Co reported its credit funds, the firm's biggest, rose 3.6 percent in May and 16.2 percent for the year, a person familiar with the matter said. The Paulson Advantage fund, which suffered double digit losses in 2011 and 2012, gained 2.4 percent in May and 4.4 percent for the year.
The person did not to be named because the person was not authorized to discuss the returns publicly.
The best performer was the Paulson Recovery fund, with some $2 billion (1.2 billion pounds) in assets, which climbed 4.9 percent last month and 27 percent for the year. Bets on insurance, banking and defaulted securities fuelled gains, Paulson wrote in a letter to investors.
Investments in insurer Genworth Financial (>> Genworth Financial Inc), which has climbed 44.61 percent this year, and mortgage insurer Radian (>> Radian Group Inc), up 107 percent this year, helped boost returns.
The gains are a welcome rebound for Paulson whose normally media-shy firm has been in the news too much for its own taste and has seen clients, including pension funds, leave over the last two years, helping shrink assets from $38 billion in early 2011 to $18 billion now.
Now that the economy is finding fresh traction, with housing becoming a particular bright spot, Paulson's biggest portfolios are delivering some of the best returns in the $2.2 trillion hedge fund industry. The average hedge fund has gained only 4 percent this year while the Standard & Poor's 500 index is up about 15 percent.
Earlier this week Daniel Loeb said his Third Point Capital's Offshore Fund gained 3.7 percent in May and 14.7 percent for the year while David Einhorn's Greenlight Capital rose 2.9 percent for the month and 8.6 percent for the year. Bill Ackman's Pershing Square was flat for the month but up roughly 8 percent for the year.
Paulson also told investors that his credit and merger funds cleared their so-called high water marks, having climbed out from under recent years' losses, and are now able to collect performance fees again.
The Paulson Gold fund tumbled 27 percent in April when the price of gold dropped 17 percent over a two-week stretch. Paulson has long said he is sticking with his bet on gold and gold miners, saying that inflation will eventually rebound and the yellow the metal will be a good hedge.
(Reporting by Svea Herbst-Bayliss; Editing by Phil Berlowitz)
By Svea Herbst-Bayliss