The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja Page B
Authors: Maneet Ahuja
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graduated with were four years ahead of him in pay and position at other banks, while he was back at the bottom.
And after four years of learning the ropes at Bear, Paulson felt prepared to play in the big leagues. “Once I got to the point where I had gained the experience advising in mergers, negotiating merger agreements, underwriting common stock, preferred stock, subordinated debt, and senior debt offerings, and having a Rolodex full of capital providers, I felt then I was ready to move back to the principal side. My experience at Bear gave me the building blocks that I needed to act as principal.”
In the late 1980s, Gruss Partners and Bear Stearns together made a large gain on the sale of Anderson Clayton Company and Paulson became close with Marty Gruss, son of Joseph Gruss, the founder of Gruss Partners and the current senior partner. The firm was founded in 1938 and had built an enviable long-term track record in risk arbitrage. Paulson left Bear Stearns in 1988 to become a general partner at Gruss Partners. At that point, the merger business was slowing as Drexel failed and the economy dropped into a recession. Bankruptcy reorganizations were rising, however, so Paulson focused most of his time at Gruss on distressed and bankruptcy investing. As much as he liked working at Gruss, though, he realized that he ultimately wanted to be in business for himself.
“I’m Sort of an Independent Person”
Paulson wasn’t afraid of the challenge of building his own business. “People kept saying that if you start your own business you’re going to fail,” he says, “but I never thought I would. I thought that in order to do well, all I needed to do was compound at above-average rates of return, and I thought, ‘Why shouldn’t I be able to do better than average?’ That seemed to be the easy challenge. So all you had to do was minimize losses and make more than average. If you could do that, you could be successful. And I already had the skills to do that in risk arbitrage, mergers, and bankruptcies.”
So he launched Paulson Partners in 1994. He started with $2 million of his own money and waited for the phone to ring. He sent out 500 announcement cards to potential investors, saying, “We’re pleased to announce the formation of Paulson Partners,” and told his lawyer he expected “to open” with $100 million.
But raising money was tough. “Although I had a lot of contacts,” he says, “I didn’t have a lot of money. I sent those announcement cards out to everyone I knew, and I thought the phone would ring and everyone would be calling to invest. Well, the phone never rang. I got only one card back from Ace Greenberg offering congratulations.” So Paulson picked up the phone and was met with a mix of indifference, skepticism, and occasional curiosity. “Some did provide a sliver of encouragement and said, ‘John, you know, I like you but you don’t have a track record, so come back when you do.’ ”
Source: Paulson & Co.
Paulson knew he had to build a track record. But this was a daunting task given the small capital he had and it took not a small amount of effort to stay positive. He recalls: “It was so very tough coming to work every day, making calls, having meetings, and then getting rejected. People would avoid my calls or make appointments and then cancel. Some of the junior analysts at Bear when I was there were now partners. I’d call them and they wouldn’t see me—guys that worked for me!”
In an effort to broaden his investor base, Paulson waived the $1 million minimum investable amount, and some encouraging conversations buoyed his hopes. He was disciplined and says: “I started managing the small amount of money I had as professionally as I could. I sent out monthly reports with our performance data to anyone with a vague interest.” After receiving the same letter for 12 months showing very positive results, some of those people
And after four years of learning the ropes at Bear, Paulson felt prepared to play in the big leagues. “Once I got to the point where I had gained the experience advising in mergers, negotiating merger agreements, underwriting common stock, preferred stock, subordinated debt, and senior debt offerings, and having a Rolodex full of capital providers, I felt then I was ready to move back to the principal side. My experience at Bear gave me the building blocks that I needed to act as principal.”
In the late 1980s, Gruss Partners and Bear Stearns together made a large gain on the sale of Anderson Clayton Company and Paulson became close with Marty Gruss, son of Joseph Gruss, the founder of Gruss Partners and the current senior partner. The firm was founded in 1938 and had built an enviable long-term track record in risk arbitrage. Paulson left Bear Stearns in 1988 to become a general partner at Gruss Partners. At that point, the merger business was slowing as Drexel failed and the economy dropped into a recession. Bankruptcy reorganizations were rising, however, so Paulson focused most of his time at Gruss on distressed and bankruptcy investing. As much as he liked working at Gruss, though, he realized that he ultimately wanted to be in business for himself.
“I’m Sort of an Independent Person”
Paulson wasn’t afraid of the challenge of building his own business. “People kept saying that if you start your own business you’re going to fail,” he says, “but I never thought I would. I thought that in order to do well, all I needed to do was compound at above-average rates of return, and I thought, ‘Why shouldn’t I be able to do better than average?’ That seemed to be the easy challenge. So all you had to do was minimize losses and make more than average. If you could do that, you could be successful. And I already had the skills to do that in risk arbitrage, mergers, and bankruptcies.”
So he launched Paulson Partners in 1994. He started with $2 million of his own money and waited for the phone to ring. He sent out 500 announcement cards to potential investors, saying, “We’re pleased to announce the formation of Paulson Partners,” and told his lawyer he expected “to open” with $100 million.
But raising money was tough. “Although I had a lot of contacts,” he says, “I didn’t have a lot of money. I sent those announcement cards out to everyone I knew, and I thought the phone would ring and everyone would be calling to invest. Well, the phone never rang. I got only one card back from Ace Greenberg offering congratulations.” So Paulson picked up the phone and was met with a mix of indifference, skepticism, and occasional curiosity. “Some did provide a sliver of encouragement and said, ‘John, you know, I like you but you don’t have a track record, so come back when you do.’ ”
Source: Paulson & Co.
Paulson knew he had to build a track record. But this was a daunting task given the small capital he had and it took not a small amount of effort to stay positive. He recalls: “It was so very tough coming to work every day, making calls, having meetings, and then getting rejected. People would avoid my calls or make appointments and then cancel. Some of the junior analysts at Bear when I was there were now partners. I’d call them and they wouldn’t see me—guys that worked for me!”
In an effort to broaden his investor base, Paulson waived the $1 million minimum investable amount, and some encouraging conversations buoyed his hopes. He was disciplined and says: “I started managing the small amount of money I had as professionally as I could. I sent out monthly reports with our performance data to anyone with a vague interest.” After receiving the same letter for 12 months showing very positive results, some of those people
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