| John Paulson, president of Paulson & Co. Inc (Photo credit: Rick Maiman/Bloomberg) |
If following hedge funds for years has taught me anything, it’s that the mighty can fall. And few hedge fund managers have plummeted more steeply than John Paulson.
After he emerged from relative obscurity to personally net a stunning $3.7 billion in 2007 — a record at the time — by betting the credit crisis would get even worse, he has seen his stature and the assets in his firm, Paulson & Company, soar, topping out at $36 billion.
In 2010 he then made $4.9 billion, landing him at the top of Alpha’s annual Rich List ranking of top-earning hedge fund managers, mostly from his huge bet at the time on gold and the gold shares of his funds.
However, the following year his various funds posted declines of between 10 percent and 52 percent. Mixed results since then and lousy performance in some of his funds — as well as redemptions over the past few years — have now caused assets to drop to $10 billion at the beginning of this year. This is down 40 percent from last year alone, when it was managing $16.2 billion, and down nearly 75 percent from the peak. Today John Paulson’s net worth stands at $7.9 billion, according to Forbes.
Last year most of Paulson’s main funds declined by double-digits. For example, Paulson Advantage lost 14 percent after dropping 3 percent in 2015 and 18 percent in 2014.
Paulson Partners lost 25 percent last year, while Paulson Special Situations dropped 30 percent. The only bright spot was Paulson Credit Opportunities, which rose 12 percent.
So far, this year has not been much better. In the first quarter, the firm’s credit funds were flat, while most of the other major funds fell roughly between 3 percent and 5 percent. Its new, small long-short fund is up 7 percent after losing roughly 2 percent last year.
Paulson earned an MBA from Harvard Business School and began his career as a management consultant with Boston Consulting Group. His first Wall Street job was as an associate at Leon Levy and Jack Nash’s legendary Odyssey Partners. In 1984 he left for Bear, Stearns & Co., where he became a managing director in mergers and acquisitions. In 1988 he joined merger-arb shop Gruss Partners as a general partner. Six years later he launched Paulson & Co.
As we chronicled at the time, as early as 2005, Paulson was shorting risky pools of collateralized debt obligations and buying credit default swaps on the cheap for the firm’s merger arbitrage and event-driven funds. Paulson was betting that the U.S.’s five-year housing bubble was ready to burst. He had little success at first but stuck to his convictions.
In June 2006 he launched the Paulson Credit Opportunities Fund to short subprime mortgage-backed securities. The fund finished the year up nearly 20 percent, and in January 2007, Paulson launched a second fund, Credit Opportunities II.
Unlike other managers who profited mostly by shorting the ABX subprime mortgage index, Paulson and his team bet against individual CDOs and the underlying mortgage securities. By the end of the year, the original Credit Opportunities Fund had a net return of 590 percent; the newer credit fund was up 353 percent.
In recent years Paulson has been hurt, in part from making major bets on the health care industry and potential major merger deals. He suffered significantly from his huge positions in Valeant Pharmaceuticals International and to a lesser extent, Allergan, Shire, Mylan, and Teva Pharmaceuticals.
He also will miss out on qualifying for the Rich List for a third straight year.
