Billionaire hedge fund manager John Paulson said on Tuesday he still sees compelling long-term returns in equities even after their sharp run-up this year, while holding no short positions in the credit markets.

Today our net long exposure is perhaps the highest it has ever been in our portfolio, Paulson said during a luncheon presentation at the Japan Society.

We still find a lot of compelling long investments on the equity side, he said, citing specifically Bank of America , U.S. cable-television giant Comcast Corp , and Germany's HeidelbergCement AG .

Paulson said that at the end of 2008 he viewed the credit correction as having run its course. By April he had poured cash back into the sector.

That is why we don't have any shorts in credit, he said.

Paulson, who has run his own hedge fund since 1994, has become a star investor after correctly predicting the sub-prime credit crisis in 2007. That reaped him a $3 billion profit.

The Standard & Poor's 500 stock index <.SPX> is up roughly 63 percent from its March nadir, but still down 30 percent from its October 2007 all-time high.

Bank of America was identified as one of Paulson's biggest positions when regulatory filings were released at the end of the second quarter of this year.

Based on his estimates of the company's earnings potential and the expectation that loan loss provisions will start to drop in 2010, Paulson remained upbeat on the beleaguered bank.

I think the worst is behind us in terms of provisioning, Paulson said, adding: I would expect provisioning expense to be considerably lower in 2010 versus '09 and again much lower in 2011 versus 2010.

Based on the current price at $15.47, That seems to be a great buy today, he said.

If we look across the markets we find a lot of great buys, whether it is HeidelbergCement or Comcast, he added.

CREDIT BUYS

Given his prescient bearish call on mortgage credits, Paulson's views are widely watched for what he has in his $33 billion investment portfolio.

He highlighted the attractive yields on credit issued by GMAC due in Sept 2011, the former General Motors automotive financing company that the U.S. government propped up at the end of 2008.

By Paulson's thinking, the government involvement is equivalent to an explicit guarantee on GMAC's finances.

So instead of buying (a) Treasury bond which yields 84 basis points, I can buy GMAC which is almost, I consider equivalent to a government bond and I can get 11 percent. That is why we have allocated so much money to this particular security, he said.

Even as credit and equity markets looked attractive, he did reiterate his concerns that over the long-term inflation will be a problem because the government's mountain of stimulus cash will be difficult, politically, to withdraw from the economy.

Therefore we are concerned about high rates of inflation in the future. As an investor I became very concerned about having my assets denominated in U.S. dollars, he said.

So I looked for another currency in which to denominate my assets in. I feel that gold is the best currency.

Paulson's combined gold and gold-related investments made up more than 46 percent of his firm's holdings at the end of the second quarter of this year.

(Reporting by Daniel Bases and Joseph Giannone, Editing by Chizu Nomiyama)

Germany Investment Inflation