Investors tempted to put money into star hedge fund manager John Paulson's new gold portfolio will have to commit at least $10 million and leave the money locked up for at least one year, according to a prospectus.
In return, Paulson & Co, one of the world's biggest and most successful hedge fund firms, says it can deliver returns that top gold prices, at a time analysts are betting that rising demand will make the metal even pricier.
Since founding his New York-based firm in 1994, Paulson has concentrated mostly on merger deals and the credit market. A bet that housing prices could fall on a national level famously earned him roughly $3 billion in 2007.
Now, Paulson is making a concentrated bet on miners and other bullion-related investments because central banks are buying gold and he expects prices to keep rising as demand outpaces supply.
Gold prices reached an all-time high of $1152.85 an ounce this week.
Paulson has hired two gold industry experts: Victor Flores, HSBC's former senior gold mining analyst, and John Reade, a former senior metals strategist at UBS. Reade had originally planned to join Credit Suisse.
Paulson introduced his plans to some existing investors earlier this week. Other potential clients are getting a look at the details in a private prospectus obtained by Reuters.
While Paulson is best known for his bet on the credit market, he has included gold stocks in his funds for several years and currently has at least 10 percent of the firm's roughly $30 billion invested in this sector.
Paulson's Advantage Plus fund has gained 18.62 percent this year, topping the Standard & Poor's 500 14.72 percent gain, in part because of out-sized gains in certain gold stocks.
The fund holds AngloGold Ashanti
Potential investors in the new fund, which is set to launch in January, will pay Paulson a 1.5 percent management fee and a 20 percent incentive fee. Analysts termed those rates reasonable considering Paulson's track record and the fact that some other prominent fund managers command performance fees of 30 to 50 percent.
Investors will be able to get their money back twice a year after having given the fund firm 60 days' notice.
The minimum investment is considered high at a time when investors are still smarting from losses of about 19 percent in 2008 -- a slump that prompted pension funds, endowments and wealthy individuals to pull billions out of the $1.5 trillion industry.
Gold has long been popular as a hedge against inflation, which some economists fear is on the verge of rising sharply given extremely low interest rates set by the U.S. Federal Reserve and other central banks.
Paulson's prospectus quotes William Poole, the former president of the St. Louis Fed, as saying We are very vulnerable to an inflation explosion.
While Paulson's portfolios have long been winners, some potential investors expressed concern that the portfolio could be volatile and fall fast if gold prices retreat.
(Reporting by Svea Herbst-Bayliss, editing by Matthew Lewis)