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Trump Adviser Takes Stake in China Ride-Sharing Company

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A woman in Shanghai placed an order at a station for the ride-sharing company Didi Chuxing. Credit Imaginechina/AP Images

A hedge fund billionaire who was an economic adviser to President-elect Donald J. 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’ operations in China.

John Paulson, who made $ 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, a privately owned Chinese company, said people briefed on the matter who were not authorized to speak publicly.

The investment, by Mr. Paulson’s Advantage funds, is roughly 7 percent of the assets of those portfolios, he told investors, these people said.

Didi Chuxing, which has backing from Alibaba Group and Apple, 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, the American ride-hailing giant Uber, to acquire Uber China in a transaction that created a company some valued at $ 35 billion.

Mr. Paulson disclosed the investment in Didi at a meeting with investors on Wednesday in New York during which he apologized for the overall poor performance of his $ 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, Mr. Paulson is joining several prominent hedge funds and investment firms including two so-called Tiger Cubs — a nickname for firms founded by protégés of hedge fund manager Julian Robertson and his Tiger Management. One of those firms, Coatue Management, founded by Philippe Laffont, made a $ 2 billion investment in July 2015, 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.

“We expect Didi to grow into one of China’s largest internet companies, resulting in significant equity appreciation over the next five years,” Mr. Loeb recently told investors in a letter.

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John Paulson told his investors on Wednesday that at least one of his portfolios had taken an investment stake in Didi Chuxing. Credit Mark Lennihan/Associated Press

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 — it could take years for the company to make money. This could make it difficult for Mr. 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.

Didi had also been fighting a costly price war with Uber China. Travis Kalanick, co-founder of Uber, wrote in a blog post at the time of the deal, “Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there.” While the sale should improve Didi’s performance over time, that is still to be seen.

In recent years, Mr. 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 $ 15 billion payday — helped him attract investment from a wide array of investors. In a 2015 financial disclosure form, Mr. Trump reported being an investor in three of Mr. Paulson’s funds, including Advantage Plus. It is not known if he is still an investor.

Mr. Trump in August named Mr. Paulson as one of his economic advisers. Mr. Paulson was one of the first people on Wall Street to lend support to Mr. Trump’s presidential campaign. In May, he hosted a fund-raiser at Le Cirque in Manhattan where tickets for hosts were $ 250,000 a couple.

But 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 $ 12 billion from $ 36 billion in 2011. One of the firm’s big losing bets this year is Valeant Pharmaceuticals. Its stock has fallen to $ 18 a share this year from about $ 100.

Mr. Paulson has had a mixed record investing in China.

His firm invested in China’s 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, 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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