Frequently referred to as "one of the most recognisable names in high finance," John Paulson The billionaire definitely lives up to his name with a net worth of over $11 billion and a fund with $19 billion under control.
Here's a deeper look at John Paulson, the man in charge of the third-largest hedge fund in the world.
Childhood and Education
John Paulson was born in New York in 1955 to an Ecuadorian dad and a European-Jewish mom. His three siblings and he attended the neighborhood public schools during his formative years in Queens. John Paulson established his intellectual prowess early on. He enrolled in the College of Business and Public Administration at New York University in 1973 and earned a Finance degree graduating with honors upon leaving. He graduated from Harvard Business School with a Master of Business Administration in 1980. He received the Baker Scholar title, which is granted to the top 5% of students, and graduated from Harvard. The largest donation in Harvard's 379-year existence, John Paulson's $400 million gift was revealed on June 3rd.
Early on, the billionaire has shown that he was a calculating risk-taker. Paulson took a vacation from college in the 1970s and moved to Ecuador to start a business. He established his first company when he was in Quito, selling children's apparel to department markets in New York. He transferred to NYU to continue his education not long after realising the company was not making a sufficient profit. Paulson joined the prominent consulting company BCG after getting his MBA in 1980, but left to pursue a career on Wall Street. Before he started his own fund in 1994, he worked for Odyssey Partners, Bear Sterns, and Gruss Partners. Most people are familiar with the story of his company Paulson & Co.'s success.
Paulson & Company
Paulson and Co. were established in 1994 with a $2 million investment and one employee. At its height, the fund was in charge of $38 billion. The company specialises in event-driven arbitrage methods, such as but not restricted to M&A arbitrage, stressed credit, bankruptcy reorganisation, and structured credit. Their "objectives are capital protection, beyond average long-term profits, and low market correlations."
Due to the financial crisis, John Paulson gained notoriety in 2007. Paulson & Company made a $15 billion profit in 2007 alone after placing several wagers and shorts on the housing market. The anticipated personal gain of John Paulson is $3–4 billion. Paulson's pessimistic assessment of the credit market during the financial crisis extended above the housing and included both consumer and business debt. He wagered against significant financial institutions in the US and the UK in 2008, which led to the failure of many. The criticism was harsh. His perspective turned more positive after 2008. Although Paulson and Co. saw great success during the economic meltdown, it also faced several difficulties. When the gamble on an early US improving economy didn't pan out as planned in 2011, the fund Advantage Plus saw a loss of 50% of its value. His Gold Fund suffered substantial losses in 2012, which caused the company's AUM to drop by about $20 billion.
Paulson & Co. has 125 employees and $19.4 billion in assets under management as of March 2015.
Investment Philosophy Of John Paulson
My investment philosophies were heavily influenced by Marty and Joseph Gruss, Marty's father. Two of his sayings helped me move forward.
Watch out for the negative; the upside will keep hold of itself, said the first. That has been a crucial guiding principle for me. Not losing money is what we want to avoid doing. If we don't outperform the S&P in a particular year, our investors will be understanding, but they won't be understanding if we experience substantial drawdowns.
The other adage, which makes the same idea from a different perspective, is that risk differential is not about generating money, but about keeping money from being lost. You get to keep all of your earnings if you can reduce the risk, which improves performance. Paulson, John
2nd quarter 2015 portfolio allocation
Paulson and Co. has 47 publicly reported positions spread across eight industries, since the most recent 13F filing. 47% of the equity portfolio is made up exclusively of the healthcare sector.
John Paulson: Things You Didn't Know
First steps in his career
In 1980, Paulson began his career by conducting studies for the Boston Consulting Group, but he had his sights set on making it big on Wall Street. He accordingly quit BCG and started working for Odyssey Partners. He then moved on to Bear Stearns, where he specialised in merger or acquisition, before ending up at Gruss Partners LP and being a partner therein. Paulson finally acquired one million dollars in 1994, borrowed an office building from Bear Stearns on their 26th floor, and launched his own company, Paulson & Co., with just one person. However, he soon succeeded in moving the business to a facility at Madison Avenue and 57th Street, and by 2003 Paulson & Co. had made $300 million.
It seems that John Paulson has a gift for spotting impending financial opportunities and crises. Given that he amassed his billions by acting promptly in the wake of the 2007 housing meltdown and short-selling subprime mortgage assets, it is clear that this gift has benefited him. More information concerning his apparent ability to predict the financial future may be found in Greg Zuckerman's book, "The Greatest Trade Ever Made."
What was the largest hedge fund handled by Paulson in terms of dollars?
Paulson & Co. hedge funds did at one point reach a staggering height of $36 billion, as according to Forbes, in 2018 they had a rather significant decline, falling to $6 billion. Both of these numbers are enormous to you and me. But this is a big dip in the midst of the hedge fund game. Although the $6 billion figure is nice, we all agree that $36 billion would be much greater.