Investcorp, a Bahrain-based investment bank, is considering setting up a $1 billion fund to take advantage of turmoil in global credit markets by buying distressed debt.

A spokesman said on Monday the fund's manager would include arbitrage specialist John Paulson, who made billions of dollars last year by betting against the US housing market.

Paulson's hedge fund group quadrupled in size last year on the back of the credit crisis, earning him a $3.7 billion paycheque, ahead of industry legend George Soros.

Paulson manages about $30 billion and counts former Federal Reserve Chairman Alan Greenspan as an adviser.  Investcorp, which is listed in Bahrain and London, said on Monday institutions may be invited to invest at least $25 million in the new fund and the debt will be bought at a discount.

The bank, which like Paulson benefited from betting against the subprime credit market albeit to a smaller degree, specialises in investing Arab wealth outside the region and said in January it had more than $15 billion of assets under management as of December 31.-Reuters