‘Don’t focus on what you can make, but on what you can lose’

David Craig, a pioneer of the British hedge-fund industry, recalls lessons learned from John Paulson, the New York investor who topped last year’s global earnings league

New York in the mid-1990s: my long-time investing partner Richard Atkinson and I were in the city seeking out people with whom we might co- invest. We had run our own fund — reputed to be the first hedge fund in London — for 11 years, and had progressed to a stage where we thought we were getting good at this sort of talent-spotting. Nonetheless, we were particularly wary of getting fleeced by second-rate opportunists, or worse, fraudsters. We could only avoid that by rigorously counselling with a network of in-the-know types who could help with our due diligence processes. Towards the end of day four we popped in to see Guard Hill, an up-and-coming arbitrage firm resident at the Bear Stearns Galleria on Park Avenue.

As dusk set in outside the windows of the 25th floor, someone in the room suggested that if we had time to spare we might find something of interest if we looked in on a new fund manager who had just set up next door. At the end of a day on the road, I generally like to fold up my papers, call my loved ones in England and get ready for a cocktail or two, so I was not keen. Then Melissa from next door came into the room and, in what I would describe as a Mike Hammer moment, I lost interest in anything other than this creature who had wafted across my line of vision. Without a thought for what we might be getting into, Richard and I followed her into the adjoining office to meet the man behind this new firm: John Paulson.