Here's The Truth About John Paulson's $5 Billion Year

John Paulson personally made $5 billion last year, according to the Wall Street Journal, but there’s a misconception out there that he earned it in compensation.

That would have been impossible.

In order to do that, Paulson’s funds would have had to have made $25 billion last year, and kept the entire 20% the fund earned in profits to himself, paying none of his portfolio managers.

Paulson manages just over ~$30 billion, and he didn’t double the size of his fund. But he did earn $5 billion.

So how’d he do it?

 Investing in his own fund — he put his own money in and it churned out $4 billion, according to the WSJ.

So $4 billion of it wasn’t really compensation, it was capital gains income. Which is even better! But still an important distinction. He made $5 billion two different ways.

The remaining about $1 billion in profits came from compensation. The largest hedge fund in Mr. Paulson’s $36 billion investment portfolio, Advantage Plus, grew 17% last year, while another big one rose 11%, according to the WSJ. Paulson’s gold denominated fund was up about 37% in 2010, according to an investor. (It was up 33.6% in December.)

His fund gained on shorts on Euro banks, profits from an investment Citi, and of course a lot came from gold. 

So he earned about $1 billion from the 2 and 20% fees hedge funds managers take out of the fund, and $4 billion from investing in his own fund. $1 billion in compensation. $4 billion in personal investment gains.

Paulson also has another bet on housing, and he suggests you buy a house (or 3) right now.

Click here to see what John Paulson was invested in as of last quarter >

Click here to read the story at the WSJ >

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