23/09/2008 - 17:42:38
The man taking multi-million euro bets against UK banks is believed to have earned the largest one-year payday in Wall Street history.
New York hedge fund manager John Paulson saw the warning signs of a troubled US housing market more than three years ago and set out to “take as much advantage” as possible.
Last year, two funds set up by his firm Paulson & Co were up $15bn, about 600%, and he entered the Forbes list of billionaires after taking an estimated $3.5bn in fees.
The US business magazine said the windfall was “believed to be (the) largest one-year payday in Wall Street history”.
In early 2007, his net worth was estimated at $300m, but last month, as the 78th richest American, his bets increased it to $4.5bn, Forbes said.
His major breakthrough came in 2005, when he was convinced the US economy would soon fail and asked his employees to find a “bubble” to short.
In mid-2006, when few people expected a crisis in the housing market, Mr Paulson believed aggressive lending was widespread and set up a hedge fund solely to bet against risky mortgages.
He took advantage of the market by finding a way to make complex debt trades pay off if mortgages lost value.
The “exuberance in the credit markets and the massive liquidity was severely mispricing these securities”, he told Pensions and Investments magazine.
While housing remained strong, Mr Paulson remained convinced of its imminent crash, despite his funds losing money, and said it was “just a matter of waiting”.
He added to his investments.
“I’ve never been involved in a trade that had such unlimited upside with a very limited downside,” he told the Wall Street Journal.
He said his former boss had told him to “watch the downside, the upside will take care of itself”.
His hedge funds bought “credit-default swaps” – designed for buyers who wanted to insure against the debt going bad – that he thought had been priced too low.
He also took “short” positions in risky “collateralised debt obligations” - repackaged mortgage securities.
So when the sub-prime mortgage crisis and the credit crunch hit, Mr Paulson saw the value of his funds soar 600%.
Born on December 14, 1955, John Alfred Paulson studied finance at New York University’s College of Business and Public Administration, where he graduated first in his class.
He went on to receive an MBA from Harvard Business School and was awarded the designation of Baker Scholar, the school’s top academic honour, for graduating in the top 5%.
He joined Bear Stearns in 1984 as a member of its mergers and acquisitions team before moving to Gruss and Co four years later.
He launched his own business in 1994.
Aware that he was benefiting from others’ misfortunes, the married father-of-two has kept a low profile, saying he was reluctant to celebrate while so many Americans faced losing their homes in the crisis.
According to the Wall Street Journal, he even used software to stop his clients forwarding his emails and spreading his tactics.
The man taking multi-million euro bets against UK banks is believed to have earned the largest one-year payday in Wall Street history.
New York hedge fund manager John Paulson saw the warning signs of a troubled US housing market more than three years ago and set out to “take as much advantage” as possible.Last year, two funds set up by his firm Paulson & Co were up $15bn, about 600%, and he entered the Forbes list of billionaires after taking an estimated $3.5bn in fees.
The US business magazine said the windfall was “believed to be (the) largest one-year payday in Wall Street history”.
In early 2007, his net worth was estimated at $300m, but last month, as the 78th richest American, his bets increased it to $4.5bn, Forbes said.
His major breakthrough came in 2005, when he was convinced the US economy would soon fail and asked his employees to find a “bubble” to short.
In mid-2006, when few people expected a crisis in the housing market, Mr Paulson believed aggressive lending was widespread and set up a hedge fund solely to bet against risky mortgages.
He took advantage of the market by finding a way to make complex debt trades pay off if mortgages lost value.
The “exuberance in the credit markets and the massive liquidity was severely mispricing these securities”, he told Pensions and Investments magazine.
While housing remained strong, Mr Paulson remained convinced of its imminent crash, despite his funds losing money, and said it was “just a matter of waiting”.
He added to his investments.
“I’ve never been involved in a trade that had such unlimited upside with a very limited downside,” he told the Wall Street Journal.
He said his former boss had told him to “watch the downside, the upside will take care of itself”.
His hedge funds bought “credit-default swaps” – designed for buyers who wanted to insure against the debt going bad – that he thought had been priced too low.
He also took “short” positions in risky “collateralised debt obligations” - repackaged mortgage securities.
So when the sub-prime mortgage crisis and the credit crunch hit, Mr Paulson saw the value of his funds soar 600%.
Born on December 14, 1955, John Alfred Paulson studied finance at New York University’s College of Business and Public Administration, where he graduated first in his class.
He went on to receive an MBA from Harvard Business School and was awarded the designation of Baker Scholar, the school’s top academic honour, for graduating in the top 5%.
He joined Bear Stearns in 1984 as a member of its mergers and acquisitions team before moving to Gruss and Co four years later.
He launched his own business in 1994.
Aware that he was benefiting from others’ misfortunes, the married father-of-two has kept a low profile, saying he was reluctant to celebrate while so many Americans faced losing their homes in the crisis.
According to the Wall Street Journal, he even used software to stop his clients forwarding his emails and spreading his tactics.
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