John Paulson Bests $4B Gains of 2007, with $5B Year in 2010

By Jan 28, 2011, 10:30 AM Author's Blog  

We’ll leave the societal discussions of our currently structured financial incentives for another day, but the WSJ reports that John Paulson has surpassed his legendary 2007 haul of $4B, with a $5B payday in 2010. As we’ve outlined in the past, after betting against the mortgage market, Paulson turned around and bet with the government big time, as moral hazard is the new way to gain epic generational riches. What is interesting is the largest hedge funds have now grown so immense in size, they don’t even have to have exceptional performance to create once unheard of wealth. Indeed, the average hedge fund in 2010 lagged the S&P 500′s performance – by about a third. And lagged the average mutual fund by nearly half. Indeed, once you become a certain size it becomes increasingly difficult to beat the market. Whatever the case, with this incentive program, expect a continued march of the country’s best and brightest minds into this one niche field.

Via WSJ:

  • Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his “short” bets against subprime mortgages in 2007.  Mr. Paulson’s take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers.
  • Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.
  • Mr. Paulson and his fellow managers seldom take much of their profits in cash. Some of the profits are so-called paper gains, which reflect the rising value of their firms’ holdings, and could erode if those investments sour. Other gains come from selling investments, and most of those are rolled back into their funds.

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