Mr Paulson plans to open a hedge fund by December that will provide capital to the world's biggest banks and brokers as they add to the $345 billion they've raised in the past year, according to two people with knowledge of the matter. His Paulson & Co, which oversees $33 billion, hasn't set a size target for the fund, said the people, who declined to be identified as the plans are not yet complete.

The New York-based firm's credit funds rose as much as sixfold last year, helped by bets that rising defaults on subprime home loans would pummel the value of mortgage-backed securities. The meltdown has forced the world's biggest banks and securities firms to take $467 billion in asset write-offs and credit losses and led to the collapse of Bear Stearns, the US bank, later bought by JPMorgan. The turmoil has also hit banks around the world, such as Switzerland’s UBS.

Mr Paulson declined to comment. His 2007 earnings made him the highest-paid hedge-fund manager, according to Institutional Investor's Alpha magazine. Mr Paulson started his firm in 1994. He previously was a partner at Gruss Partners between 1988 and 1992 after working for four years at New York-based Bear Stearns, where he was a managing director in the mergers and acquisitions group.