An investment manager credited with helping Paulson & Co become one of the biggest and most successful hedge fund managers over the past two years has quit to set up his own investment

An investment manager credited with helping Paulson & Co become one of the biggest and most successful hedge fund managers over the past two years has quit to set up his own investment business in what the firm described as 'an amicable split'.

Paolo Pellegrini, who co-managed Paulson's credit opportunities funds, plans to manage his own money for a few months before taking money from third-party investors, according to reports.

Paulson emerged from relative obscurity to become an industry leader with an estimated USD36bn in assets after Pellegrini and the firm's founder, John Paulson (photo), took bets in 2006 that the US housing market would slump, causing the country's sub-prime mortgage market to collapse, along with the value of mortgage-backed securities and derivatives.

Defying the financial and economic turbulence that left the average hedge fund nursing losses of around 20 per cent last year, Paulson's credit opportunities funds continued to thrive in 2008, producing reported returns of 14 to 16.5 per cent. Other Paulson funds also bucked the industry trend by delivering positive returns last year.

Pellegrini's departure from Paulson & Co reflects evokes the resignation last year of Greg Coffey, the star emerging markets manager who turned his back on an estimated USD300m in share options and bonuses when he elected in April to leave GLG Partners.

After finally quitting GLG in October, however, Coffey decided to join another hedge fund manager, Moore Capital Management, rather than going it alone in an environment that had drastically deteriorated over the previous six months.