Paulson & Co, last year's most successful hedge fund, has told investment bankers it is ready to consider backing rescue recapitalisations of troubled financial institutions - signalling a switch from betting against the sector to buying into it.

John Paulson, founder of the $35bn New York hedge fund, told clients on a conference call last week that he remained extremely bearish, according to two investors who took part in the call. But he is prepared to take long positions across mortgage securities, banks and finance houses as prices fall to his target levels.

Paulson shot to prominence last year when its bet against US subprime mortgages saw it make a profit of more than $10bn across its funds - the most profitable trade in history. It has continued to gain, though less spectacularly, this year.

"This is the first indication [from Mr Paulson] of a belief that we were anywhere within sight of the moment to go long," said one investor who was on the call.

Mr Paulson will launch his Recovery fund on October 1 and - in a move that investors said could attract billions of dollars - will immediately allow clients to switch money across from the hugely successful $11bn Credit Opportunities funds. Investors in the two funds, which made 590 and 352 per cent returns last year, would otherwise have to wait until the end of the year to move their money. Clients predict large amounts will be withdrawn then, as investors take profits and rebalance portfolios.

But Mr Paulson reiterated his negative views on the economy and financial sector and his prediction of $1,300bn of credit losses worldwide - with $500bn of them still to come. He also said junk bonds were nowhere near the distressed levels he expected, forecasting a doubling of credit spreads to 16 percentage points.

"He thinks the magic moment in distressed [debt] is still some way off," said one client.

However, Mr Paulson said there were likely to be one-off opportunities soon, and the fund had alerted bankers that it would consider buying newly issued shares or convertible bonds in banks and other institutions desperate for capital.