John Paulson, the hedge fund manager struggling with uneven returns since his windfall wager against U.S. housing in 2007, is turning to his own fortune to help backstop his firm.

The billionaire pledged his personal investments in four of his firm’s hedge funds as additional collateral for a credit line Paulson & Co. has had with HSBC Bank USA for at least five years, according to a filing last month with the state of New York. The holdings will also serve as guarantee for a new personal line of credit for Paulson.

Paulson is using his wealth to back the firm’s borrowings after investment losses and client defections cut assets by more than half from their peak. The decline is eroding the fees Paulson & Co. pledge as collateral for the original credit line, and on which the firm relies to pay expenses and compensate employees.

“If the company’s financials don’t support the credit line, you get somebody like that to provide a credit enhancement,” said Thomas Leslie, an attorney at Greenberg Traurig LLP who has represented issuers of loans secured by hedge fund interests.

Routine Expenses

Money managers sometimes establish revolving credit lines to meet routine expenses, just as a manufacturer or retailer might arrange financing to pay for inventory and meet other working-capital needs. Armel Leslie, a member of Peppercomm Inc. who serves as a spokesman for New York-based Paulson, said the firm has had a credit line for at least the last five years to handle short-term cash flow.

Filings show Paulson & Co. secured its December 2010 credit line with annual management fees from five of its hedge funds, a common form of collateral in the industry. The firm’s funds charge outside clients a standard annual management fee equaling 1 percent to 2 percent of assets and a performance fee totaling 20 percent of profits, according to its latest investment- adviser registration.

The collateral may be down in value since Paulson & Co. entered into the agreement. The firm’s assets under management, which generate the fees, have fallen about 50 percent to $18 billion since Paulson & Co. received the credit line. Of the money that remains, more than half belongs to Paulson and other insiders at the firm who have been exempt from paying fees.

Retaining Talent

Leslie declined to comment further on the December filing, as did Robert Sherman, an HSBC spokesman. The filing didn’t show why Paulson’s fund stakes are being used as collateral for the company’s borrowing agreement, or what he plans to do with his personal line of credit.