Other hedge fund leaders have tapped their wealth to back their firms and retain top talent during slumps, said Jeff Levi, a partner at Casey Quirk. Levi, whose Darien, Connecticut-based firm acts as a management consultant to fund advisers, said he was speaking in general without knowledge of Paulson’s plans.

“In past market dips, some of the founders did dig into their own pockets to pay bonuses,” Levi said. “You run the risk of losing key people if you don’t provide a market level of compensation.”


Subprime Wager


Paulson shot to fame and made a profit of $15 billion nine years ago when the subprime mortgage market collapsed, setting off the global financial crisis. The firm’s net assets under management peaked at $38 billion in early 2011, before clients started pulling out amid losses.

As of the end 2014, about 57 percent of the firm’s capital belonged to Paulson and others who don’t pay management and performance fees, according to a filing. More recent information couldn’t be obtained.

Paulson has an estimated net worth of $9.2 billion, according to the Bloomberg Billionaires Index, though it’s mostly tied up in his funds. He obtained the credit line by pledging his stakes in Paulson Partners Enhanced LP, Paulson Advantage II LP, Paulson Advantage Plus II LP, and Paulson Credit Opportunities IV LP.


Performance Fees


Other wealthy managers who have borrowed against stakes in their own funds include George Soros, whose lender is also HSBC, and Blackstone Group LP co-founder Stephen Schwarzman. Their collateral wasn’t being used to back their firms, filings show.

Paulson’s investment returns have been volatile in recent years, depressing the performance fees that can help fund employee bonuses. The firm endured its second-worst showing ever in 2014, including a 36 percent decline at Paulson Advantage, a strategy tied to corporate events such as bankruptcies and spinoffs.

Paulson’s merger-arbitrage strategy, a bright spot in performance, struggled last year. One share class of Schroder GAIA Paulson Merger Arbitrage, a Luxembourg version of the fund Paulson runs, fell 4.3 percent, according to a marketing document obtained by Bloomberg.

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