(Updates with Paulson comment in third paragraph.)

Jan. 24 (Bloomberg) -- Paulson & Co., the hedge fund run by billionaire John Paulson, told clients that the firm made more than $1 billion on its Citigroup Inc. investment since the middle of 2009.

Citigroup was the fund’s most profitable bank holding last year, Paulson said in a letter to clients this month.

“Citigroup demonstrates the upside potential of many of the restructuring investments we have added to our portfolio and our ability to generate above-average returns in large positions,” Paulson said in the letter, a copy of which was obtained by Bloomberg News.

Paulson sold 82.7 million shares in New York-based Citigroup in the third quarter, leaving it with 424 million shares, according to filings. The bank was Paulson’s fourth- largest U.S. equity holding in the period.

Paulson, which manages $35.9 billion, said it expects to see continued U.S. economic growth this year.

“We believe the U.S. economy is recovering and we anticipate continued growth,” the firm said in the letter.

Armel Leslie, a spokesman for the New York-based hedge fund, declined to comment on the letter.

--Editors: Steven Crabill, Larry Edelman

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net;

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net