John Paulson

Born in 1955 in Queens, New York, Paulson graduated summa cum laude from New York University in 1978 and earned his MBA from Harvard Business School in 1980. He worked in investment banking and at Bear Stearns before founding Paulson & Co in 1994, specializing in merger arbitrage and event-driven strategies. Paulson's fund grew steadily through the 1990s and early 2000s as a competent but not spectacular merger arbitrage shop. The firm's transformation came from a massive bet against the US subprime mortgage market that Paulson began building in 2006. Working with Paolo Pellegrini (a key analyst) and using credit default swaps on mortgage-backed security indices (ABX) and custom CDOs, Paulson built a position that he called the "greatest trade ever." He had painstakingly analyzed loan-level data in mortgage-backed securities and concluded that the AAA ratings on many CDO tranches were deeply flawed and that rising defaults would trigger cascading losses. As the subprime market collapsed in 2007 and accelerated through 2008, Paulson's Credit Opportunities Fund gained 590% in 2007 alone. Across his various funds, the trade generated approximately $15 billion in profit for investors and approximately $4 billion for Paulson personally — the single largest one-year personal income ever reported by a hedge fund manager at the time. The trade was chronicled in Gregory Zuckerman's 2009 book The Greatest Trade Ever. After the subprime success, Paulson made a large bet on gold and gold mining stocks (2009-2011), which initially succeeded but then reversed as gold peaked in 2011. His fund's performance has been more mixed since.