Mortgage crisis helped John Paulson reap $3.7 billion

A bad year for homeowners meant a good year for John A. Paulson.

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Paulson, the founder and president of the hedge fund Paulson & Company, made $3.7 billion last year, according to an annual listing of the 50 most highly paid hedge fund managers.

The list compiled by Institutional Investor’s Alpha Magazine was previewed on the magazine’s website yesterday.

Paulson acquired his money by betting against the subprime mortgage market, using a complicated system that increased his earnings as the value of financial instruments bundling the mortgages dropped.

In other words, as the world got poorer, Paulson got richer.

He was by no means alone.

The list of top managers shows four other billion-dollar earners.

George Soros, of Soros Fund Management, made $2.9 billion last year, followed closely by the 2006 leader, James H. Simons of Renaissance Technologies at $2.8 billion.

Philip Falcone of Harbinger Capital Partners earned $1.7 billion and Kenneth Griffin of Citadel Investment Group came away with $1.5 billion.

The average compensation for the top 25 fund managers last year was $892 million, according to the survey.

The report of this wealth stands in contrast to other recent news about home foreclosures, record-high oil prices and food shortages in some parts of the world.

Even Wall Street is a little “uneasy” that some individuals are doing so well because others are doing so badly, the New York Times reported.

“There is nothing wrong with it - it’s not illegal,” William H. Gross, the chief investment officer of the bond fund Pimco, told the newspaper. “But it’s ugly.”

The Wall Street Journal wrote in January that Paulson had told friends he was going to increase his charitable giving to help those in need.

In October 2007, he donated $15 million to the Center for Responsible Lending. That money was to help families about to lose their mortgages.

“While we never made a subprime loan and are not predatory lenders, we think a lot of homeowners have been victimized,” Paulson told the Journal.

Paulson, 52, who is not related to U.S. Treasury Secretary Henry M. Paulson Jr., began his investment career at Odyssey Partners. He moved on to Bear Stearns, where he was in mergers and acquisitions. From there, he went to Gruss Partners, the investment firm.

In 1994, Paulson started Paulson & Co. with $2 million. By the end of last year, the firm had $28 billion in assets, an increase in $22 billion from the previous year, the Times reported.

In January of this year, Paulson & Co. made news by appointing Alan Greenspan, the former chairman of the Federal Reserve, to its advisory board.

The appointment was panned by some. They said that Greenspan had switched sides by joining up with a company that had profited from the failure of low-interest policies that he had advocated while leading the Federal Reserve.

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