John Paulson, founder of the hedge fund Paulson & Company, made an unprecedented $3.7 billion last year by betting against subprime mortgages and the financial products that held them.

Paulson took the top place in Institutional Investor’s Alpha magazine’s ranking of the 50 most highly paid hedge fund managers. George Soros ranked second with $2.9 billion and James Simons came in third place with $2.8 billion in earnings. The top 25 managers on the list earned an average of $892 million.

Starting in 2005, Paulson created two funds that focused on the credit markets and shorted subprime mortgages. One of his funds returned 590%, while the other made 353%. Paulson’s $6 billion fund group rose to $28 billion in assets in a year.

“The enormous riches being generated by hedge funds come at a time of extraordinary distress in financial markets, as millions of homeowners face potential foreclosure and the U.S. plunges into recession,” Alpha wrote. “Undoubtedly, the huge paydays chronicled here are sure to cause a heightened level of envy and resentment toward hedge funds, and will draw additional scrutiny by Washington, which is already weighing whether to increase regulation.”

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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