Trading & Options · Profile from Trading and Options Research Companion
Paulson & Co.
The New York hedge-fund firm founded by John Paulson in 1994 as a small merger-arbitrage shop — with $2m and one employee in office space rented from Bear Stearns (Gregory Zuckerman's The Greatest Trade Ever, 2009, as cited by Wikipedia) — which made what is usually called the greatest trade in hedge-fund history: buying credit default swap (CDS) protection on subprime mortgage bonds in 2006–07 and earning a reported ~$15bn for the firm on ~$12.5bn invested in 2007 (Zuckerman and Newsweek, as cited by Wikipedia; reported, unaudited). The same trade put it at the centre of the SEC's Abacus 2007-AC1 case against Goldman Sachs, in which the SEC alleged that Paulson helped pick the bonds it was betting against; Paulson was not charged (SEC complaint, 16 Apr 2010). After a ~$4.9bn personal payday for John Paulson in 2010 on gold-linked bets (reported), the firm's fortunes reversed: the Sino-Forest fraud and bank-stock losses of 2011 (Advantage Plus down ~46–52%, sources differ), the 2013 gold crash, falling assets from a peak of ~$36–38bn (2011) to ~$9bn (2018), and the conversion to a private investment office that returned all outside capital (announced 1 Jul 2020). For a trading book Paulson & Co. is the cleanest large case of cheap convexity on a crowded wrong belief — and of how one trade can be both an edge and a reputational liability, and how hard it is to repeat.
At a glance
- Founded
- 1994 by John Paulson (born 14 Dec 1955, Queens), with $2m and one employee (Zuckerman 2009, via Wikipedia); the SEC complaint (16 Apr 2010) describes it as "a hedge fund founded in 1994"
- Founder
- NYU (finance, 1978) and Harvard MBA (Baker Scholar, 1980); Boston Consulting Group (1980), then Odyssey Partners, Bear Stearns M&A and Gruss Partners (general partner) before founding the firm (Wikipedia; dates for the middle jobs not given)
- Headquarters
- New York City (1251 Avenue of the Americas in later years — from memory, verify); first office at 277 Park Avenue, rented from Bear Stearns (Wikipedia, citing Zuckerman)
- Ownership / structure
- Private partnership; from Jul 2020 a private investment office managing John Paulson's own money (Reuters/Bloomberg, 1 Jul 2020, reported)
- Funds
- Paulson Partners / Paulson International (merger arbitrage, from memory, verify names); Paulson Advantage and Advantage Plus (event-driven; Plus was levered ~1.5× — from memory, verify); Paulson Credit Opportunities I and II (created 2006 to buy CDS on subprime bonds — SEC complaint); Paulson Recovery (launched end-2008); Paulson Gold (announced Nov 2009, launched Jan 2010) (Wikipedia)
- Scale (dated, reported)
- ~$300m (2003, Bloomberg Businessweek via Wikipedia); ~$12.5bn invested in 2007 (Wikipedia); $36bn (2011, "world's fourth-largest hedge fund") with a peak elsewhere given as $38bn in 2011 — the page gives both; $18bn (Sep 2013); $19bn (Dec 2015); $9bn (2018) (all Wikipedia); "roughly $9bn" late 2019 (SWF Institute, reported); ~80% of the money by 2020 was Paulson's own (press reports of Jul 2020)
- Signature record (rule 4(c) — letters and press, unaudited)
- Credit Opportunities fund +589.9% net in 2007 (Bloomberg, as reproduced by secondary sites); Credit Opportunities II +351.8% (2007, same); firm-wide ~$15bn gain in 2007; Abacus 2007-AC1 alone ~$1bn profit (SEC complaint ¶5); Advantage −36% and Advantage Plus −52% in 2011 (Wikipedia) — or Advantage Plus −46% in dollar shares and −29% in gold shares (Reuters, as summarised)
- Regulators
- SEC (registered adviser until 2020 — verify Form ADV withdrawal date); no enforcement action against the firm was found by this batch
- Signature moves (incl. failures)
- Founding as a merger-arbitrage firm (1994); the subprime CDS/ABX short (2006–07); Abacus 2007-AC1 and the SEC case (2007–10); UK bank shorts and US bank longs (2008–09); the gold fund (2009–13); Sino-Forest and the 2011 losses; conversion to a family office (2020)
7 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
1994
Founding as a Merger Arbitrage Firm
Founding or fund launch
2006
Subprime CDS and ABX Short
Large trade or position / new fund launch
2007
Abacus 2007 AC1 and the SEC Case
Large trade or position / regulatory, enforcement or legal action (as a non-defendant)
2008
UK Bank Shorts and 2009 Bank Longs
Strategy pivot (short financials, then long the recapitalised banks)
2009
Gold Fund and the Inflation Bet
New fund launch / large position — a win (2010) and then a loss (2013)
2011
Sino Forest and the Advantage Plus Losses
Loss, drawdown or blow-up response (failure)
2020
Conversion to a Family Office
Capital raise, fee change or return of outside capital / closing a fund or strategy