A star Goldman Sachs hedge fund trader who helped the bank profit from the sub-prime mortgage crisis has quit the firm to set up his own $1 billion hedge fund.

Josh Birnbaum was one of a number of traders who bet on behalf of the bank that the sub-prime mortgage markets would deteriorate last year.

He helped Goldman to emerge as one of the least harmed of Wall Street banks by the subsequent credit crunch.

Sources close to the bank confirmed Mr Birnbaum, 35, had left Goldman to set up a hedge fund. But it is understood the bank will not be anchor investors.

Details of Mr Birnbaum's departure came after it emerged yesterday that some hedge fund traders had profited massively from the collapse in values of securities backed by American sub-prime mortgages.

John Paulson, who runs Paulson & Co, made a personal fortune of $3.7 billion last year after betting against sub-prime markets, according to a list published yesterday by Alpha, a US magazine.

A handful of London based hedge fund managers shared a payout of more than $2 billion over the same period.

Bloomberg reports that at least 70 funds have been established over the past year specifically to buy products linked to risky US home loans. Companies setting up such funds include Blackstone Group, Pacific Investment Management Co and Goldman itself, according to the agency.

"The question is really: What's his encore?" Geoff Bobroff, a US-based consultant, told Bloomberg.

"Some people believe, and probably rightfully so, that there's a lot of opportunity in all these distressed products out there," he said.

Mr Birnbaum joined Goldman in 1993.

He worked with Michael Swenson, a fellow structured products trader, and Dan Sparks, the head of Goldman's mortgage department, according to The Wall Street Journal.

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