John Paulson (easily confused with former Treasury Secretary Hank Paulson) gets the 2007-2008 MVPM (Most Valuable Portfolio Manager) Award from this blog. Why? On a risk/reward basis not only did Mr. Paulson's hedge fund Paulson & Co time the market perfectly for the subprime meltdown, he also bet with a small amount of capital and hardly any leverage. For more detailed information you should read all of the articles scattered below. He wasn't the only one betting against the housing market. I remember Doug Kass, Gary Shilling 1, 2, and Roubini were predicting this publically on CNBC, with conviction.
Starting in 2005/6 Paulson wanted to short the housing market and since he couldn't short houses he shorted the subprime mortgage index, or ABX (Chart: 7/30/07 - 1/30/08, markit.com) via credit default swaps, debt protection on subprime mortgages. The risk premium, or spread pricing default risk on these securities were very cheap in 2005. As the credit crisis gained momentum banks and other institutions rushed to buy protection on these securities which widened the spread. Paulson killed it. His funds were up "$15 billion in 2007", his "older Paulson Credit funds rose 590% while the newer one rose 350%" WSJ source.
His streak didn't end in 2007. The Paulson Advantage Plus fund was up 37.6% net in 2008 (the S&P lost 36.9%). He also made some interesting plays in the merger arbitrage speace. The full Paulson & Co. 2008 Year End Report can be found here (Scribd report via NYT DealBook), it's a must read.
Plenty of people have been hating on Paulson claiming what he did was criminal profiting from the crisis, but lets not forget he invests for pension funds, endowments and foundations and I'm sure they're all glad they didn't have money with Madoff. He also donated $15 million to the Center of Responsible Lending, which also brought questions... It looks like Paulson & Co. set up a recovery fund which I believe includes, or will include IndyMac Federal Bank. Paulson manages $36 billion.
Also he was at the Hedge Fund hearing on 11/13/2008 testifying before Congress. Thought you might be interested to hear what he had to say. Video via C-Span.org. Also if interested, watch the biggest hedge fund managers George Soros, Ken Griffin, James Simons and Falcone testify before congress here.
READ THIS: Trader Made Billions on Subprime (WSJ) 1/15/2008
Get Shorty: The man who has bet £800m against British banks (Guardian.co.uk)
HFRX Global Hedge Fund Index (Bloomberg)
Investor consortium to buy IndyMac for $13.9bn (AltAssets)
John Paulson, Proud Short (Felix Simon/Portfolio.com)
The Man Who Made Too Much (Portfolio.com)
John Paulson’s Funds Shine in the Gloom (DealBook NYT)
Hedge Funds Lost Record 18.3% on Misjudged Markets (Update3) (Bloomberg)
Paulson & Co., Brevan Howard, Caxton, Touradji post strong gains in 2008 (MarketWatch)
Sun Hung Kai, Paulson to launch distressed fund (Reuters) 1/16/09
Distressed Debt Specialists See "Bonanza Year" in 2009 (A.E. Feldman)
Hedge fund chief pessimistic about UK property (FT.com)(June, 2008)