Paulson & Co. Inc. (“Paulson”) is an investment management firm, owned by its employees, established by its founder and President, John Paulson in 1994.

Overview
Paulson & Co. Inc. (“Paulson”) was established by its founder and President, John Paulson, in 1994. It is an investment management firm, employee-owned, headquartered in New York City, United States. The firm provides services to investment vehicle pools and manages accounts for banking institutions, corporations and pension and profit sharing plans.

Since founding, the firm has continued to develop its investment capabilities and infrastructure and as of June 13, 2012, had approximately $24 billion dollars in assets under management. Paulson employs approximately 120 employees in offices located in New York, London and Hong Kong. Employees of the firm are currently the largest category of investors in the funds on a firmwide basis. External investors in the Paulson funds include financial institutions, corporate and public pension funds, endowments, foundations and high net worth individuals.

All of the firm’s strategies are based upon the same underlying investment philosophy and objectives of capital preservation, above average returns, low volatility, and low correlation to the broad markets. As a firm, Paulson manages five fund strategies within the event driven space. Areas of expertise within these strategies include:

Merger arbitrage: High quality spread deals, announced mergers with the possibility of higher bids, unique deal structures, short deals unlikely to close;

Event arbitrage: Spin-offs, litigations, restructurings, proxy contests, post-Bankruptcy equities;

Distressed securities: Liquidations, high yield long/short, capital structure arbitrage, bankruptcies, reorganizations.

There are approximately 50 investment professionals in the firm, including John Paulson who is the Portfolio Manager for all funds under management. Other key investment professionals include Andrew Hoine, Nikolai Petchenikov, Sheru Chowdry, Sihan Shu, Michael Waldorf and Ty Wallach, amongst others. Additionally, Paulson has an external Advisory Board that meets on a monthly basis to discuss investment themes, macroeconomic risks, and global fiscal and monetary policy. Current members of the Paulson advisory Board are Dr. Alan Greenspan (President of Greenspan Associates LLP), Christopher Thornberg (Beacon Economics), Dr. Edward Altman (Professor, Stern School of Business, NYU, and Dr. Martin Feldstein (Professor, Harvard University).

Through its domestic and international entities, Paulson is registered with the U.S. Securities and Exchange Commission (SEC) in the United States, the Financial Services Authority (FSA) in the United Kingdom, and the Securities and Futures Commission (SFC) in Hong Kong. Through the various filing requirements imposed by these regulatory bodies, Paulson makes regular disclosures regarding its portfolio holdings across various jurisdictions. Over the years, some of these disclosures have included investments in mergers, proxy contests, banks, structured credit, and other areas of event driven investing.

History
PCI is reported to have earned $15 billion with $12.5 billion in assets under management in 2007.

As an expert in event driven investing, Paulson has made hundreds of investments in mergers, acquisitions, spin-offs, proxy contests and other corporate event over the years. One example of this was in Yahoo’s proxy contest in May 2008, when Carl Icahn launched a proxy fight to try to replace Yahoo's board Paulson’s first quarter 13F filing showed that the firm owned 50 million shares of Yahoo at the time

Paulson & Co. has invested in a number of undervalued companies that are acquisition targets, aiming to increase the bid price on these companies as a large shareholder. In 1997, Paulson & Co., which owned a 6.2% stake in Washington National Corp., opposed PennCorp Financial Group Inc.’s $400 million deal to takeover Washington National, calling the terms of the deal “inadequate”. Conseco Inc. later purchased Washington National for $410 million, and Paulson & Co. President John Paulson was quoted in media accounts as praising Washington National for moving to get a higher price for its shareholders

The Financial Crisis
In 2005, Paulson became concerned about weak credit underwriting standards, excessive leverage among financial institutions and a fundamental mispricing of credit risk. To protect its investors against the risk in the financial markets, Paulson purchased protection through credit default swaps on debt securities they thought would decline in value due to weak credit underwriting.

As credit spreads widened and the value of these securities fell, Paulson realized substantial gains for investors and is reported to have earned $15 billion with $12.5 billion in assets under management in 2007.

In December 2009, the New York Times reported that Paulson had profited during the financial crisis of 2007 by betting against synthetic collateralized debt obligations (CDOs).

On April 19, 2010, the Wall Street Journal reported that Paulson employee Paolo Pellegrini was the point man in Paulson's investment in subprime mortgages.

In 2008, Paulson believed that credit problems would expand beyond subprime mortgages to include areas of consumer, auto, commercial and corporate credit, and that the rising credit costs would continue to stress financial institutions causing spreads to widen and causing certain institutions to fail. This bearish outlook on the credit markets led them to take short positions in some large financial institutions in the US and the UK with high degrees of leverage, high concentrations of assets in deteriorating sectors and rising credit costs. Sectors include mortgage finance companies, specialty finance companies and regional, national, and global banks.

In September 2008, Paulson bet against four of the five biggest British banks including a £350m bet against Barclays; £292m against Royal Bank of Scotland; and £260m against Lloyds TSB. Paulson is reported to have earned a total of £280m after reducing its short position in RBS in January 2009.

To help protect these bets, PCI and others successfully prevented attempts to limit foreclosures and rework mortgage loans.

Recovery
Following the collapse of Lehman Brothers in the fall of 2008 and the subsequent turmoil in the markets, Paulson launched a fund at the end of 2008 dedicated to restructuring and/or recapitalizing companies such as investment banks and other hedge funds currently feeling the pressure of the more than $345 billion of write downs resulting from under-performing assets linked to the housing market. By providing capital to companies at trough valuations, thus enabling them to survive beyond the crisis, Paulson believed there would be considerable upside potential through a subsequent recovery in the equity of these companies. Companies in the fund that benefited from such recapitalizations were largely concentrated in the financial, insurance and hotel sectors.

Amongst some of the holdings disclosed in Paulson’s June 30, 2009 13F filings were 2 million shares of Goldman Sachs as well as 35 million shares in Regions Financial Paulson also purchased shares of Bank of America in the spring of 2009 when the bank was forced to recapitalize its balance sheet following the results of the bank stress tests conducted by the US government, and was reported to have a 1.22% stake in the bank in 2011. According to certain sources, Paulson purchased the shares expecting the stock to double by 2011.

After the 2008 Stock Market crash, Paulson's investment in Citigroup reportedly generated $1 billion from the original investment in 2009 through the end of 2010, called by reporters the "Betting on Citigroup". Mr. Paulson stated that the investment in Citigroup "demonstrates the upside potential of many of the restructuring investments we have added to our porfolio and our ability to generate above-average returns in large positions"

Gold Thesis
In November 2009 Paulson announced a gold fund focused on gold mining stocks and gold-related investments. Paulson believed that the massive amount of balance sheet expansion through monetary stimulus undertaken by the Federal Reserve and other central banks would eventually lead to inflation in the US dollar and other fiat currencies. In such an environment, gold would become the alternative currency of choice for investors globally, causing the value of gold to increase significantly.

Bankruptcy Investments
Paulson also has a long track record of investing in distressed debt, bankruptcies and restructurings. The 2008-2009 financial crisis resulted in a record high level of defaults and bankruptcies across numerous industries, and Paulson was a large investor in many of the largest and most prominent ones, including the Lehman Brothers bankruptcy and liquidation.

In February 2010, PCI was linked to the restructuring and recapitalization of the publisher Houghton Mifflin Harcourt. The agreement included restructuring about $4 billion of its $7 billion debt load by converting it to new equity issued to the senior debt holders, one of whom was Paulson. Through this debt to equity conversion, Paulson would reportedly become the company’s largest equity investor

Goldman Sachs
On April 16, 2010, PCI was mentioned by the U.S. Securities and Exchange Commission in court fillings when the SEC sued Goldman Sachs and one of Goldman's CDO traders. The allegation was that Goldman Sachs had (mis)represented to its investors that an objective third party (ACA Management) had assembled the mortgage package underlying the CDOs and that Paulson & Co. had a major role in assembling the mortgage package. As a counterparty in the CDO transaction, Paulson & Co. stood to reap great financial benefit in the event of default. Paulson & Co was not a defendant in the case. Paulson released a statement saying that Paulson "is not the subject of this complaint, made no misrepresentations and is not the subject of any charges".

Current Status
In 2011 PCI was ranked as the world's fourth-largest hedge fund with $35.8 billion in investor assets under management and a 1.22 percent stake in Bank of America.