FORTUNE — Hedge fund manager John Paulson burst onto the public stage in a haze of awe and admiration after he bet that subprime mortgages would lose money and his prescience earned him a gargantuan $3.7 billion payday in 2007. In a rare feat for money managers, he became a household name. Rarer still, he was known as a hero rather than a villain, having accomplished two of the things that Americans admire most: He got super rich, and he did it by being a genius. Paulson, the unassuming man in a funereal black suit, was suddenly a star.
As with all American star stories, the backlash was just around the corner. After all, we build up our heroes, whether in pop culture or politics, so we can tear them down to our satisfaction. When it seemed that he would have a down year in 2010, the media wondered whether Paulson was a one-hit wonder. He also got tangled up in the government’s investigation of Goldman Sachs GS, when the SEC accused the bank of deceiving buyers of an investment product called Abacus, whose value depended on the performance of subprime mortgages. Goldman, it seemed, had not disclosed that Paulson was short Abacus, and that he had helped build the product.
But Paulson didn’t stumble. He lost money for most of 2010, but then came back in December and ended the year up about 17%. As for the Abacus debacle, that has seemingly slid off the money manager’s back. In fact, he took home a record-breaking $5 billion payday that year by betting on an economic recovery.
Now it seems that Paulson might fulfill the fallen hero part of the narrative, as he flirts with the money management equivalent of dating Kevin Federline, or having an affair with Monica Lewinsky (or Paula Jones, or Gennifer Flowers…). He’s had a bad year, and the media and the blogosphere won’t let you forget it. His family of “Advantage” funds lost money through the end of June, with Paulson Advantage Plus down about 18%, Paulson Advantage down about 12.3%, and the gold-denominated version of Paulson Advantage down about 7.6%. The bad numbers have been widely reported, along with the fact that he lost money investing in Chinese timber company Sino-Forest, Bank of AmericaBAC, and CitigroupC. “Has John Paulson lost his magic touch?,” asked the Telegraph. “Paulson funds founder as some big bets backfire,” wrote the Wall Street Journal. And The Business Insider declared, “You won’t believe how badly John Paulson is doing this month.” Could total destruction be far behind?
Less attention has been paid to the other half of Paulson’s $37 billion empire, which has not, as the blogosphere might say, hit the wall. According to investor reports and people close to the fund, Paulson International is up 3.4% year-to-date, Paulson Credit Opportunities is up 5%, and Paulson Recovery is up just about a percent. These aren’t strikingly big numbers (not in the way that down 18% grabs your attention), but given that the average hedge fund is down 1.2% so far this year, according to Hedge Fund Research, they’re actually pretty decent.
And it seems that investors are giving Paulson the benefit of the doubt. There have been few redemptions, and one investor tells Fortune that he has no plans to abandon ship. As one Paulson rival notes, lots of guys who have long made money are in the red this year, and you don’t see headlines about it. They’re just not famous enough, beyond the confines of Wall Street, for people to much care.
If he can end the year with decent returns across the board, Paulson will delay the investor backlash, but the media’s schadenfreude will likely continue.