Paulson & Co., Inc.
Paulson & Co., Inc. is a hedge fund management company that was established in 1994 by CEO John Paulson. It is one of the top five hedge fund management groups in the world and has seen great success since its founding, mostly via selling short on business ventures that they determine to be unstable or a likely candidate for default. Also on the Board of Directors at Paulson & Co. is Alan Greenspan, former Chairman of the Federal Reserve Board.
Chairman Paulson, who is not related to former Goldman Sachs CEO and U.S. Treasury Secretary Hank Paulson, had previously been employed with the Boston Consulting Group and Odyssey Partners. Paulson also had worked in the mergers and acquisitions group at Bear Stearns and later was a partner with Gruss Partners LP. He is currently one of the top five highest paid hedge fund managers in the world, earning $2.3 billion in 2009 alone.
Paulson & Co. has profited exponentially from the US housing crisis primarily by assessing the risk associated with credit default swaps and the terms of the mortgages after they complete the original low-interest period of mortgage and enter the range of increased interest rates, often doubling the size of the mortgage payment after the introductory rate has passed. Paulson correctly assessed many of these mortgages as being unstable and the chances of default were considerable enough to warrant shorting. As the number of foreclosures increased, Paulson's profits increased.
The fund actually began the move by buying credit default swaps and shorting collateralized debt back in 2005 when it launched the Credit Opportunities fund. They then established Credit Opportunities II in 2006. In 2007, its financial report reflected an increase in the original fund of nearly 600% and an increase in the second fund of over 350%. Both ranked in the top five of high performance hedge funds as ranked by Barron's hedge fund rankings.
In addition to betting solidly on the market, Paulson & Co. is heavily invested in the gold market. The consulting group began the move to gold investments after the success it enjoyed in the previous two years of the housing bubble and bank bailout. Gold prices have been on a steady increase and rarely have a downside in risk assessment. Though it is small in the number of executives involved in making investment decisions, Paulson & Co. are indisputably one of the most successful investment operations of the past decade.
It has also had huge success with the financial bailout: Troubled Asset Relief Program. After Citigroup was given $45 billion in government support, Paulson & Co. bought numerous shares while the stock price was low. When the price increased after a solid annual financial report, they sold around 15% of their shares at a 40% increase. They owned over 500 million shares of Citigroup stock and sold 83 million shares during the 3rd quarter of 2010. Paulson stated in a letter to shareholders in January that the hedge fund had made over $1 billion on Citigroup alone in less than two years.