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Paulsons Pellegrini Leaves to Start His Own Firm

Date: Tuesday, January 6, 2009
Author: Svea Herbst-Bayliss, ThomsonReuters.com

Investment manager Paolo Pellegrini has left Paulson & Co., which he helped transform into one of the industry's most successful hedge fund firms by betting the housing bubble would burst.

Mr. Pellegrini, who co-managed Paulson & Co.'s credit opportunities funds, resigned on Wednesday [Dec. 31], a spokesman for the New York-based company said on Monday [Jan. 5], describing the departure as an amicable split.

Mr. Pellegrini plans to set up his own hedge fund, managing his own money for a few months before taking outsiders' cash, said a person who is familiar with his plans but not authorized to speak publicly about them.

Mr. Pellegrini has been closely linked to Paulson & Co.'s success, but the firm's spokesman said Paulson had many top analysts, suggesting it could take his departure in stride.

Paulson & Co. manages roughly $36 billion and ranks as one of the world's biggest hedge fund firms.

Founder John Paulson, along with Mr. Pellegrini, defied conventional wisdom by betting in 2006 that housing prices could decline on a national level and that investors had overvalued mortgage-backed securities. In doing so, the pair turned the medium-sized firm into an industry giant.

Mr. Pellegrini is the only person to leave Paulson & Co. in 2008, the firm's spokesman said, noting that it has roughly 80 employees.

Mr. Paulson became the hedge fund industry's top earner in 2007 when he took home an estimated $3 billion. Unlike many of his rivals, Mr. Paulson continued to make money in 2008, a year that will go down as the industry's worst ever. The average fund lost about 23% last year amid gyrating stock prices and the collapse of Lehman Brothers Holdings Inc. Through the end of November, Mr. Paulson's credit opportunities funds had returned between 14% and 16.5% year-to-date, a person familiar with the numbers said.

Messrs. Paulson and Pellegrini have kept relatively low profiles, treating investors to a celebration of their success in an exclusive New York City club late last year but otherwise staying mostly out of the limelight. Indeed, lawmakers had to ask Mr. Paulson several times to speak up when he was testifying in front of Congress late last year about the state of the hedge fund industry.

Besides the credit opportunities funds, Paulson & Co. runs other portfolios that also fared well in 2008 because of the managers' careful reading of the economy, people familiar with the funds said.

By Svea Herbst-Bayliss