Hedge fund manager John Paulson: Crook or guru?

John Paulson, surrounded by some of his amassed riches: money, mansion, luxury cars, etc.

Hedge fund billionaire John Paulson made mad money betting against the housing market. (Photo Credit: CC BY-ND/Global Astrology Blog)

Hedge fund manager John Paulson bet against the health of the U.S. housing market by funneling money into credit default swaps against subprime mortgages, which effectively ensured that as homeowners defaulted he would receive a massive cash advance on his investment in failure. Thanks to the bursting of the U.S. housing bubble and some shrewd choices with U.S. financials, John Paulson is a billionaire.

John Paulson and the Citigroup venture

To some, hedge fund manager John Paulson represents all of what’s wrong with Wall Street. After earning approximately $15 billion betting against the U.S. housing market in 2007 – and being labeled a “guru” for doing so – John Paulson moved to the other side of the investment speculation fence. He bet that the U.S. economy would soon rebound. This involved a series of investments in various indexes, as well as an “after the fall” outlay in favor of rebounding house prices and a bet on high gold prices. Paulson’s stake in Citigroup earned his hedge fund investors utilizing Paulson & Co. about $1 billion in 2010. Over the past year, Citigroup’s share price shot up 50 percent.

Paulson & Co. is currently responsible for $35 billion in investments. Where most hedge funds eschewed the more volatile elements of the market last year, Reuters reports that John Paulson and company took small financial lumps early in 2010, yet managed to swing things around into double-digit gains. The Paulson Advantage Plus Fund rose 17 percent for the year, while Paulson’s gold investments jumped 35 percent in 2010.

Is 17 percent all that special?

The Globe and Mail might have a reasonable point regarding the scope of John Paulson’s success when it claims that the Paulson Advantage Plus Fund’s 17 percent gain isn’t all that different than the 15 percent gain experienced by the S&P 500. But the Canadian newspaper’s viewpoint could just as easily be considered sour grapes. While it may be true that John Paulson’s “against-the-bubble” investing strategy undermined the economy at the expense of millions, the investments were made in a Wild West-style climate where federal regulators were about as effective at cleaning up the town as the milk-and-cookies sheriff who hesitates before firing. Yet few except the excuse.


The Guardian

The Globe and Mail



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