Hedge fund
Paulson & Co., Inc. had assets under management (as of June 1, 2007) of $12.5 billion (95% from institutions), which leapt to $36 billion as of November 2008.[1] Under his direction, Paulson & Co has capitalized on the problems in the foreclosure and mortgage backed securities (MBS) markets. In 2008 he decided to start a new fund that would capitalize on Wall Street’s capital problems by lending money to investment banks and other hedge funds currently feeling the pressure of the more than $345 billion of write downs resulting from under-performing assets linked to the housing market. On May 15, 2008, Paulson & Co., which bought 50 million shares of Yahoo stock during the first quarter of 2008, said it is supporting Carl Icahn on a proxy fight to replace Yahoo’s board.[2] In early 2008, the firm hired former Federal Reserve Chairman Alan Greenspan.
In September 2008, Paulson bet against four of the five biggest British banks.[3] His positions included a £350m bet against shares in Barclays; £292m against Royal Bank of Scotland; and £260m against Lloyds TSB.[4] He eventually booked a profit of as much as £280m after reducing its short position in RBS in January 2009.[5] On August 12, 2009, Paulson purchased 2 million shares of Goldman Sachs as well as 35 million shares in Regions Financial.[6] Paulson has also purchased shares in Bank of America expecting the stock to double by 2011. [7] In November 2009 Paulson announced he was starting a gold fund focused on gold mining stocks and gold-related investments[8].
In December 2009, the New York Times reported that Paulson had profited during the financial crisis of 2007 by betting against synthetic collateralized debt obligations. [9]
On February 22, 2010, Paulson’s fund was linked with the restructuring and recapitalization of the publisher Houghton Mifflin Harcourt. [10] Highlights of the agreement include, a reduction in the senior debt to $3 billion from the current $5 billion, with new equity issued to the senior debt holders (including Paulson & Co., Guggenheim Partners, and others)[11], conversion of the $2 billion mezzanine debt into equity and warrant, receipt of $650m of new cash from the sale of new equity. According to the Irish Times [12] the investments by the current equity holders of EMPG, including HMH’s CEO, Barry O’Callaghan, private clients of Davy Stockbrokers, Reed Elsevier, and others, will see their investment of over $3.5 billion written down to zero.
On April 16, 2010, Paulson & Co. was mentioned by the SEC in court fillings when the United States Securities and Exchange Commission sued Goldman Sachs and one of Goldman’s CDO traders. The SEC alleged that Goldman Sachs materially misstated and omitted facts in disclosure documents for a synthetic credit default obligations (CDO) product it originated. The allegation was that Goldman Sachs misrepresented to investors that an objective third party (ACA Management) had assembled the mortgage package underlying the CDOs when, in fact, Paulson & Co., with economic interests directly adverse to investors, had a major role in assembling the mortgage package. As a counterparty in the CDS transaction, Paulson & Co. stood to reap great financial benefit in the event of default (it’s alleged that Paulson selected a portfolio of CDOs that were likely to default, against which Paulson & Co. had already sold short or would sell short).[13][14] Paulson & Co was not a defendent in the case. Paulson & Co says that “it is not the subject of this complaint, made no misrepresentations and is not the subject of any charges.”[15
