By Svea Herbst-Bayliss
BOSTON (Reuters) - Millions of Americans may be facing the prospect of losing their homes, but a handful of fund managers have become the best paid in their industry -- taking home 10-figure paychecks last year -- by betting against mortgages.
John Paulson, who ran a medium-sized fund until last year, zoomed to the top of the industry's earnings table when he took home an estimated $3 billion in 2007, double what the top earner made in 2006, according to data released by magazine Trader Monthly on Monday.
By standing conventional wisdom on its head and deciding that housing prices could decline on a national level, and that investment-grade mortgage bonds would be subject to default in record numbers, Paulson, 52, set a new record for payouts on Wall Street, industry analysts said.
Paulson's $3 billion payout is equivalent to $26 for every U.S. household (114.4 million in 2006).
This year seems to be no worse for Paulson as his Advantage Plus fund was up roughly 8 percent through the middle of March. Many other hedge funds, however, are suffering heavy losses, with industry analysts estimating the average fund lost 5 percent in the first quarter. Hedge funds often promise to make money in all markets by using tools, such as shorting, that are off limits to other money managers.
Following behind is Phil Falcone, 45, whose shrewd housing market bets at Harbinger Capital Partners netted him a $1.5 billion payout. Falcone, a former Harvard hockey star, also made headlines by demanding changes at the New York Times Co (NYT.N: Quote, Profile, Research, Stock Buzz).
As a group, the 100-best paid hedge fund managers earned $30.3 billion last year, 26 percent more than they took home in 2006, the magazine reported.
Both Paulson and Falcone squeezed past Jim Simons of Renaissance Technologies and Steve Cohen of SAC Capital Advisors, perennial top earners who each took home between $1 billion and $2 billion in 2007. Continued...
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