In the morning of late autumn in 2006, the autumn leaves in new york Central Park were like fire.
John Paulson jogged slowly along the path by the lake. Unlike other relaxed morning exercisers, he looks a little wrinkled and preoccupied. At that time, the American real estate market was as prosperous as the branches and leaves of Central Park, which made John Paulson's funds specializing in shorting mortgage bonds lose money all the time. What's more, the news about the real estate market is overwhelming. Optimistic real estate market experts and lenders keep advocating that house prices will continue to rise, or that the federal government will cut interest rates to maintain the market.
However, John Paulson firmly believes that winter will come, and by that time, no matter how lush the branches and leaves are, they will wither in the cold wind. Jogging in the picturesque Central Park is a good way to relieve stress. He zipped up his sweatshirt and quickened his pace. ...
Atypical financial wizards
John Paulson, 52, doesn't have the standard growth track of Wall Street financial experts. 65438-0978 graduated from the School of Business and Public Administration of new york University, then entered Harvard Business School, and obtained an MBA with honors. Later, he joined the famous Boston Consulting Group as a management consultant.
In this series of growth process, John Paulson developed outstanding financial analysis ability, which made his later investment strategy very different from that of traditional financiers. His thinking is not limited by the rules and regulations in the financial system of Wall Street, nor does it depend on the scores of credit rating agencies. Instead, he likes to collect a lot of financial information and analyze it himself as the basis for judgment.
65438-0984 switched to Bear Stearns, the fifth largest investment bank in the United States, to take charge of M&A business. One of his clients, Marty gruss, manages a very successful risk arbitrage company-gruss Partnership Fund. This is a small company, but it makes a lot of money. John Paulson realized that although Bear Stearns's income is also quite rich, its main profit model is to earn commission, which is quite limited compared with the profit of investment business. Fund investment can get higher returns.
It is better to act on your own than to help others make money. After four years at Bear Stearns, he decided to switch from investment banking to fund management, joined the gruss Partnership Fund and became one of the partners, thus officially starting his fund management career.
During the period of 1994, John Paulson established its own hedge fund. Because of his working experience in Bear Stearns, he knew the M&A business like the back of his hand. He used this fund exclusively for M&A arbitrage investment, that is, buying and selling the stocks of two merged companies at the same time to obtain risk-free profits.
Calm in carnival
Before 2007, John Paulson was unknown on Wall Street, but he was always on the alert, just like a cheetah lurking behind a bush, waiting for an opportunity.
In the real estate lending market, in order to share risks and enjoy benefits, loan companies find investment banks, which bond them, resulting in CDO (mortgage debt certificate).
In order to make huge profits, many investment banks use 20~30 times leverage. For example, an investment bank in A Dai has $3 billion of its own assets and uses 30 times leverage, that is, it borrows $90 billion and invests with $3 billion of assets as collateral. If the investment income is 5%, the investment banks in A Dai will get a profit of 4.5 billion dollars, which is 65,438+050% compared with their own assets.
However, the risk of lever operation is high. As a rule, A Dai Investment Bank is unwilling to undertake such high-risk operations. So someone came up with a way to take leveraged investment as insurance. This kind of insurance is called CDS (Credit Default Swap).
A Dai Investment Bank found Agua, who may be from another investment bank or insurance company. A Dai provides insurance for leveraged operation, and pays Agua 50 million US dollars of insurance premium every year, totaling 500 million US dollars for ten consecutive years. If CDO hadn't defaulted, A Dai would have earned $4 billion in addition to the $500 million insurance premium; If CDO breaches the contract, Agua Company will compensate in any case.
For A Dai, this is an investment that only makes money, but does not lose money. But Agua is not a fool. Through statistical analysis, the situation of default in prosperous markets is less than 1%. If you take out 100 insurance, you can get 50 billion dollars in insurance money. If one of them defaults, the compensation will not exceed $5 billion.
What a good deal this is! Most fools and aguas on Wall Street are enjoying an unprecedented wealth carnival during the growth of American housing prices for more than ten years.
At the beginning of 2006, it was generally believed that house prices in the United States would never fall; Mortgage experts keep preaching that the real estate market and housing mortgage market will continue to prosper; Good news is frequently seen in major media. Most famous people on Wall Street hold the same view. Credit (securities) rating agencies also rated Wall Street's financial products AAA.
Hundreds of wild animals galloped on the grassland. However, everything around can't escape the eyes of the dormant cheetah. In the wealth carnival on Wall Street, John Paulson was unusually calm, and he was keenly aware of the bubble in the US mortgage market.
Experts were blinded by the prosperity of the real estate market. John Paulson gave up the ratings of rating agencies and personally led his 45-member team to track thousands of mortgage loans and analyze the details of personal loans one by one.
From the beginning, we should choose those personal mortgage securities with mines. During that time, John Paulson and his team analyzed all kinds of data in the office until late at night. With the deepening, he became more and more convinced that investors greatly underestimated the risks in the mortgage market, and it became more and more difficult for creditors to recover their loans.
Looking at Wall Street in the middle of the night through the window of the office building, John Paulson vaguely felt that an irresistible destructive force would come out of a neglected corner of generate and get out of control. He felt a little creepy.
Winter harvest
When others are greedy, they are afraid, and those who are afraid are awake.
The relationship between CDO and CDS (two financial products invented by Wall Street for the mortgage market) is that the higher the risk of CDO, the higher the value of CDS guaranteed for it. During the real estate boom, most people thought CDO was not too risky, so the price of CDS was very low.
John Paulson stripped the false appearance of real estate prosperity with a calm analysis. He spared no effort to convince investors that the American real estate market is facing a huge crisis, and shorting CDO is the best choice to protect his assets and make profits in this crisis.
There are few believers in prosperous times.
Many investors are skeptical and even scoff at this, because doing more CDO makes them earn a lot of money. However, John Paulson still has some long-term partners to support it.
In July 2006, John Paulson raised $6,543.8+5 billion to open a position for the first fund that only shorted CDOs. He designed a complicated fund operation mode: shorting dangerous CDOs and buying cheap CDS at the same time.
However, in the next few months, the US real estate market remained prosperous, showing no signs of depression, and John Paulson's funds kept losing money. Some investors hurriedly asked him several times if he wanted to stop loss. He flatly refused: no, I have to raise it.
Although he is calm to investors, his own heart has never been calm. On the one hand, the fund operation mode, which was completely opposite to the mainstream investment direction at that time, made him feel pressure; On the other hand, in the process of tracking a large number of personal mortgages, he clearly felt that great success was approaching step by step, just as the cheetah had locked its heavy and weak prey, and that excitement and joy could not be calmed down.
John Paulson can only ease this complicated mood by running in Central Park in the morning. Faced with a stagnant pool of water in the park, he couldn't tell whether the intense heartbeat was due to pressure or excitement.
By the end of 2006, the subprime mortgage crisis had begun to take shape. John Paulson's funds have turned losses into profits and appreciated by 20%. He became more and more confident, and then he set up a second similar fund.
In February 2007, Wall Street suffered a cold current. New Century Financial Company, the second largest subprime mortgage company in the United States, predicts quarterly losses. Two hedge funds invested by Bear Stearns, the fifth largest investment bank in the United States, also closed down one after another. All this means that a large-scale credit default has come, and the foundation of Wall Street fools and Aguas's carefully built wealth building has begun to loosen. In the financial market, the risk of CDO has increased sharply, and its value has shrunk dramatically, while CDS has increased significantly.
All this is exactly what John Paulson foresaw in those sleepless nights on Wall Street. The two funds he managed sprang up in the winter on Wall Street. By the end of 2007, the first fund has appreciated by 590%, and the second fund has also appreciated by 350%, with a total fund size of 28 billion US dollars.
According to the statistics of Alpha magazine, John Paulson's income in 2007 reached $3.7 billion, ranking first in the list of the most profitable fund managers in 2007, beating financial tycoons george soros and james simons. For a time, John Paulson became famous on Wall Street, and the first hedge fund, the smartest cheetah on Wall Street and other titles were crowned on his head.
A large-scale crisis finally broke out in 2008. Bear Stearns fell, Lehman Brothers collapsed, and Wall Street was full of fear. Just as another famous Paulson, US Treasury Secretary Henry Merritt Paulson, was crushed by the financial crisis, John Paulson was having lunch with george soros. The financial legend is devoting himself to seeking investment advice from John Paulson.
Focus only on the bad, and the good will grow on its own. This is John Paulson's investment creed, and his greed seems to have just begun. We have only achieved 25% of the expected income, and the negative impact of the subprime mortgage crisis will gradually emerge in the next three years.
However, variables are always the main theme of investment, and they are also the biggest charm that attracts people and even makes people crazy.
During the financial turmoil, investment banks closed down and insurance companies were busy protecting themselves. For the American government, fools and agua are no longer reliable. They began to pin their confidence on greedy people like John Paulson, hoping that these greedy people would come forward and become saviors.
On June 3, 2008 165438+ 10/kloc-0, John Paulson and four other top five hedge fund bosses attended the hearing held by the supervision and government reform committee of the US House of Representatives.
People who fall into panic will never understand: when these five bosses, who earned more than $654.38 billion each in 2007, walked out of the office building of the US House of Representatives after a one-day meeting and faced the cold night sky in Washington, what kind of sense of mission rose in their hearts. However, people can be sure that this is an opportunity and will be a turning point.
After the hearing, John Paulson uncharacteristically began to buy CDOs. Greedy people tried to save the sky from dumping in the storm ... Paulson Company managed (as of June 20071)1250 million yuan (95% of which came from institutions), and by June 2008, the fund had jumped to $36 billion. Under his guidance, Paulson Company made a profit in the mortgage redemption securities market. In 2008, he decided to launch a new fund to invest in investment banks and their financial institutions facing the crisis due to the subprime mortgage crisis. On May 15, 2008, Paulson bought 50 million shares of Yahoo in the first quarter, indicating that he supported carl icahn to change the board of Yahoo. In early 2008, Paulson & Company hired Alan Greenspan, former chairman of the Federal Reserve.
In September 2008, Paulson made a bet on four of Britain's top five banks, of which 350 million pounds was spent on Barclays Bank. 292 million pounds to Royal Bank of Scotland, 260 million pounds to Lloyd TSB Group, and finally he made a profit of 280 million pounds. On August 12, 2009, Paulson bought 2 million shares of Goldman Sachs and 35 million shares of Regions Financial. He also bought shares of Bank of America, which is expected to double by 20 1 1. On June 5438+065438+ 10, 2009, Paulson announced the establishment of a gold fund, which will be used to invest in companies that develop gold mines and make gold investments. The SEC pointed out in the indictment that in February 2007, entrusted by Paulson & Company, a large American hedge fund, Goldman Sachs launched a mortgage debt bond based on subprime mortgage, which was promoted to investors such as multinational banks, funds and insurance companies. Paulson Company is bearish on the US mortgage bond market. It paid Goldman Sachs about $6,543,805 in design and marketing expenses, aiming at making profits by shorting mortgage bonds. However, when Goldman Sachs sold this financial product to investors, it did not explain that Paulson Company was related to this product, which caused investors to lose about $6,543.8 billion in less than one year.