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Business

PAULSON BAGS $3B IN 2007

By
Kaja Whitehouse
Published April 13, 2008, 5:06 a.m. ET

There’s a new king of Wall Street.

Hedge fund guru John Paulson, who ascended to the throne from humble roots in Queens, wears the crown after earning a staggering $3 billion last year – money earned by correctly betting the housing bubble would pop.

That’s said to be the largest annual paycheck in the history of Wall Street.

What makes Paulson’s successful investment more impressive is that dozens of sophisticated investment houses like Merrill Lynch, Citigroup, UBS and Bear Stearns all bet wrong on the mortgage meltdown which now has the country on the edge of a recession.

And while Paulson, 52, is just the latest rock star in the world’s financial capital – remember how private-equity CEO Steve Schwarzman ruled 2006 before taking a bit of a tumble last year? – those who know Paulson say he is more Paul Simon than Mick Jagger.

Paulson, who declined to be interviewed for this story, is a quiet and reserved family man who spends his spare time with his wife, Jenny, and two daughters, or on low-key outdoor activities such as skiing and running in Central Park, associates said.

Of course he does like posh surroundings. The Post reported this week that he recently upgraded his Hamptons summer house – buying a 10-acre, $39 million waterfront manse in Southampton, a bit of an upgrade from the $12.6 million estate up the road he bought in 2006 and recently listed for $19.5 million.

Paulson profited largely by buying up an arcane investment, known as credit default swaps, which can act as insurance against mortgage debt going bad.

As for his funds, they are holding up this year, in part due to bets that financial stocks would fall, according to people familiar with the situation. The $7 billion Paulson Advantage Plus fund, for example, has posted 2008 returns of 11 percent – while the average hedge fund lost 2.8 percent in the quarter, according to Hedge Fund Research.

Since opening his firm in 1994, the former Bear Stearns executive had one bad year, losing 4 percent in 1998 on bets tied to the implosion of hedge fund Long-Term Capital Management. Since 2003, his firm has grown from nine people and $700 million in assets to 60 employees managing an estimated $32 billion.