Paulson aims to open the fund by December, according to two people with knowledge of the matter. His New York-based Paulson & Co. hasn't set a fund-raising target, said the people, who declined to be identified because the plans aren't complete.
Losses caused by the credit crisis may reach $1.3 trillion, Paulson, 52, said at a conference in Monaco on June 18. The world's biggest banks and securities firms raised $345 billion of capital in the past year following $467 billion of writedowns and credit-market losses, data compiled by Bloomberg show.
``Paulson has significant knowledge of the subprime market that has created earthquakes for the banks,'' said Ron Geffner, who represents hedge funds at the New York-based law firm Sadis & Goldberg LLP. ``I expect that he understands their experiences, balance sheets and financial exposure better than many.''
Paulson, whose firm oversees $33 billion, declined to comment. His Credit Opportunities Fund gained more than sixfold last year helped by bets on slumping mortgage prices. Paulson's 2007 earnings made him the highest-paid hedge-fund manager, according to Institutional Investor's Alpha Magazine.
The 11-member Amex Securities Broker/Dealer Index slumped 35 percent in the past 12 months, led by declines in Lehman Brothers Holdings Inc. and Merrill Lynch & Co., and U.S. mortgage lenders Wachovia Corp. and Washington Mutual Inc. lost more than 65 percent of market value in the same period.
Barclays Plc, Britain's third-largest bank, agreed last month to raise capital by selling shares to an investor group including the Qatar Investment Authority. New York-based Merrill Lynch, Morgan Stanley and Citigroup Inc., and UBS AG of Zurich also have received capital injections from sovereign wealth funds.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested. The funds declined by an average 1.6 percent in the first half of 2008, according to data compiled by Hedge Fund Research Inc. in Chicago.