Paulson Still a Bull After His Bare Year.
Authors: Gregory Zuckerman and Steve Eder
Date of Article: September 19, 2011
Specific chapter topic to which the article relates: (Leadership and Entrepreneurship)
Key Points:
- Value-based leadership and strategic focus; Despite the volatility of the US securities market, the founder and fund manager of the famous hedge-fund organization Paulson & Company is optimistic that the firm will recover from the losses it has undergone over the recent past. Paulson acknowledged the firm’s leadership failure and assured investors that the firm is making the necessary adjustments.
- Creativity, innovation and dynamic change; In the recent past, the US market has become very dynamic leading into loses in different economic sectors. One such sector is the housing industry. Paulson has been very creative and innovative which has enabled it to exploit these market changes.
- Entrepreneurship in action; In order to succeed in the dynamic business environment, it is critical for firms to diversify their business operations. This plays a critical role in minimizing the potential of loss.
Analysis
A firm’s leader should be a role model. This means that he or she should not only speak but should act in order to sustain an organization’s growth. Over the recent past, Paulson & Company has experienced an increment in the level of criticism over its recent failure in its fund management and the resulting loss. In 2011, the value of the firm’s two main funds declined with a margin of 23 % and 33% respectively.
The firm was also criticized over the recent loss of $500 million in its Chinese Company. Paulson assured the investors that he would enhance its market research team in Asia in order to identify market changes and act appropriately. Paulson’s effectiveness in being a role model in his leadership is evidenced by the decisions that he made in 2008 and 2009 that made the organization increase on its profitability despite the prevailing economic recession.
Following the loss, that the firm has experienced, the firm has made adjustments by reducing the size of its holding within Bank of America. Additionally, the firm also reduced its holding in gold companies such as Kinross Gold Corporation and AngloGold Ashanti. Paulson has incorporated the concept of teamwork in his leadership which enables him to make effective decisions. Additionally, Paulson also acts strategically by exploiting the market opportunities presented.
For example, in 2006, he forecasted the eminent failure in the housing industry and engaged his team in making a decision to invest in inexpensive derivatives which saved the company from losing. In 2009, the firm forecasted a decline in the value of major currencies and a rise in the rate of inflation. To safeguard against possible loss, the firm acted strategically and invested in gold. Over the recent past, the value of gold has increased significantly.
In making their decisions, firm’s management teams take into consideration the changes within the market. Depending on the nature of the market, some managers may be risk averse while others may be risk takers. Paulson perceived the existing conditions in the housing market which was crumbling in 2007 and 2008 as an opportunity and exploited it.
The firm achieved this by being creative and innovative. The resultant effect is that the firm made a $20 billion profit. Additionally, he also exploited the opportunity presented within the global economy in 2009 and 2010 before others could. The result is that the company increased its profitability.
Entrepreneurship requires investors to be risk takers. This arises from the fact that a high risk investment results into a high return. In its operation, Paulson & Company has been very effective in its investments. The firm has diversified its operations by venturing into waging which is a more risky investment.
Conclusion
As a result of implementing the above decisions, Paulson & Company has enhanced its probability of regaining control in the US fund market. For example, by incorporating other team members in his decision making, there is a high probability of Paulson making effective decision.
His ability to incorporate value based leadership and strategic focus is also evidenced by his actions. Additionally, the firm has also been very creative and innovative which has enabled it to exploit the market opportunities. Additionally, Paulson & Company has also been effective in exploiting market opportunities. The resultant effect is that the firm has been able to prevail in a market characterized by a high degree of dynamism.