The U.S. is not facing another financial crisis and the stock market's overreaction to fears about the economy could be a value opportunity, billionaire hedge fund manager John Paulson said.
But even the storied manager who profited handsomely by correctly predicting the 2007 housing crisis is feeling some frustration with the global market rout since the start of the year.
"We've modestly added to the portfolio, but the market is still falling," said Paulson, who spoke on a panel moderated by CNBC's Michelle Caruso-Cabrera at an investment conference in San Juan, Puerto Rico. "Anything you buy goes lower. It's getting near the point where there's certainly a lot of value out there."
But he expects the market will eventually recover to price in that value.
"There is a disconnect between the performance in stock market and the performance in many companies," said Paulson, who oversees more than $18 billion in assets. "Particularly (those) we've invested in our portfolio—the companies are actually doing very well, and yet stock prices are declining, so that's kind of an imbalance and eventually, that will sort itself out."
Paulson's funds have seen their performance wane over the past year, in line with industry peers.
Paulson & Co.'s merger arbitrage fund, the firm's largest fund with around 60 percent of the hedge fund's total capital, was able to keep performance relatively stable, ending December up about 2 percent and closing the year down approximately 3 percent.
Many of the top money managers struggled to stay in positive territory, with the average hedge fund finishing 2015 down about 1 percent, according the HFRI.
Big-name poor performers in 2015 included Pershing Square, the hedge fund of billionaire investor William (Bill) Ackman. It clocked up a 20.5 percent loss after Valeant Pharmaceuticals, a top holding, was battered in the second half of the year.
Market performance so far this year suggests hedge funds could struggle again.
But while financial shares have led much of the recent market rout amid concerns over their potential performance in a low-growth and low-interest rate environment, Paulson had some concerns about China, but wasn't particularly concerned about U.S. banks.
"[U.S.] banks are extraordinarily well capitalized," he said. "They have much lower leverage and a lot of liquidity and a much higher quality credit portfolio."
Shares of banks globally have tumbled amid concerns that central banks' easing measures, which include low and sometimes negative interest rates, will hurt net interest margins.
But while he's relatively sanguine on the U.S. financial sector, Paulson said he had some concerns about China's financial system, particularly the amount of credit that's been extended and the health of the mainland's credit markets.
China's banking sector assets rose to around $30 trillion at the end of 2015 from around $9 trillion in 2008, an increase that's come at an unprecedented speed. It isn't clear how much of that lending went toward assets that aren't performing.
Paulson has already been buying up assets in another location that's been beaten down by excessive debt: Puerto Rico.
The U.S. territory is still struggling to restructure its $70 billion debt load. Its current proposal, unveiled Feb. 1, addresses $49 billion of total due to bondholders. Senior creditors for one of the island's largest bonds unveiled a counterproposal Wednesday.
Despite the uncertainty, Paulson, who ahas repeatedly floated the possibility of relocating to Puerto Rico, is investing in the territory's physical assets. But he currently doesn't hold any of the commonwealth's debt.
Instead, his firm has been making high-end real estate acquisitions in the last few years, including the St. Regis Bahia Beach Resort, Condado Vanderbilt hotel and the La Concha Resort—an investment, according to a person familiar with the portfolio, that is doing "very well."
While Paulson may be facing some declines in his value stock picks, one of his investments is doing well: gold, where he had significant holdings.
Safe haven assets have been rallying and gold is no exception, with the precious metal rising to a one-year high of $1,260.60 an ounce, up 4 percent on the day.