NEW YORK (Bloomberg) — Josh Birnbaum, one of the traders who led Goldman Sachs Group Inc.'s push into bets against sub-prime-mortgage bonds, has left the world's biggest securities firm and plans to form a $1 billion hedge fund.

Birnbaum, 35, confirmed his departure and declined to elaborate on his plans. He has told colleagues he expects his new fund will invest in mortgage assets, according to two people familiar with his thinking who declined to be identified.

At least 70 funds have been established during the past year by firms such as New York-based Goldman, Blackstone Group LP and Pacific Investment Management Co. to snap up cheap home-loan debt amid the steepest drop in US home values since the Great Depression. Birnbaum helped Goldman offset losses on mortgage holdings and earn a record $11.6 billion last year.

"The question is really, 'What's his encore'?" said Geoff Bobroff, a consultant in East Greenwich, Rhode Island, who advises asset managers.

Birnbaum and Michael Swenson, another structured-products trader, pushed for New York-based Goldman's bets on a sub-prime collapse with backing from Dan Sparks, its mortgage-department head, the Wall Street Journal reported in December. Michael Duvally, a company spokesman, declined to comment.

Birnbaum, a native of Oakland, California, joined Goldman in 1993 after completing the undergraduate program at the Wharton School of the University of Pennsylvania in Philadelphia. He was listed among the top bachelors in the wealthy beach communities on the East End of Long Island, New York, in Hamptons magazine's "Blackbook: Wall Streeters Edition" in 2006.

"This is a guy who at this point, should have very little difficulty raising capital, because he's demonstrated a lot of ability to recognise trends," said Douglas Ciocca, a portfolio manager at Renaissance Financial Corp. in Leawood, Kansas.

Borrowers with poor or limited credit records or high debt used sub-prime mortgages to buy properties or tap home equity by refinancing. Some of Goldman's bets against the loans, including some meant to hedge against losses on other positions, involved so-called ABX contracts used to speculate on whether pools of 20 mortgage securities will be repaid as scheduled, chief financial officer David Viniar said in September.

Hedge funds including Paulson & Co. and Harbinger Capital Partners also profited by wagering against sub-prime-tied debt with ABX index contracts and similar derivatives, as did Deutsche Bank AG through bets by asset-backed trader Greg Lippmann. Morgan Stanley traders' bets against the bonds went awry because the collapse was more severe than they anticipated, causing net losses from their strategy, the New York-based firm has said.

Birnbaum, Swenson and Sparks were to be paid between $5 million and $15 million apiece last year, the Journal reported in December, citing people familiar with the matter. Birnbaum was a managing director at the company, the largest securities firm by market value.

Hedge funds, whose top 50 managers earned a total of $29 billion last year, are mostly private pools of capital whose overseers participate substantially in profits from their bets on whether the prices of assets will rise or fall. "Some people believe, and probably rightfully so, that there's a lot of opportunity in all these distressed products out there," Bobroff, the consultant, said.