Soros to Close His Fund to Outsiders
Fabrice Coffrini/Agence France-Presse — Getty Images George Soros, the billionaire financier.
8:33 p.m. | Updated
George Soros, the investor who broke the Bank of England and came to represent the swashbuckling style of hedge fund managers and then their entry into the world of global affairs, has decided to return money to outside investors in his Quantum fund.
Mr. Soros, who will turn 81 next month, is the latest hedge fund magnate to forgo managing the money of outsiders in favor of his own, though his move is more symbolic. Of the roughly $26 billion the fund manages, less than $1 billion belongs to outside investors.
The decision comes as the Obama administration has been taking steps to bring the secretive hedge fund industry into the regulatory fold. Soros Fund Management will become a so-called family office, as an entity managing an individual family’s money. The move will enable it to avoid impending hedge fund regulations like registration, according to a letter the fund sent to investors on Monday.
“An unfortunate consequence of these new circumstances is that we will no longer be able to manage assets for anyone other than a family client as defined under the regulations,” according to the letter from Mr. Soros’s sons Jonathan and Robert, who are co-chairmen of the funds. “As a result, S.F.M, will ask Quantum’s board to return the relatively small amount of nonqualifying capital to outside investors before the registration deadline, most likely at year end.”
Over the last 12 months, other prominent hedge fund managers have decided to close their shops to outside investors, including Mr. Soros’s former chief investment officer, Stanley F. Druckenmiller, who cited the stress of managing other people’s money. Chris Shumway and the activist investor Carl C. Icahn have also decided to hand back money to outside investors and go it alone.
Their retreats have come in a changing landscape for hedge funds, pools of money that were once scarcely regulated at all. Since the financial crisis, the allure of running a hedge fund has faded, as new laws and investors’ demands force managers to institutionalize by hiring compliance officers and offering more transparency.
Still, other wealthy managers who could also walk away have instead adapted. SAC Capital, the $14 billion hedge fund run by Steven A. Cohen, for example, has beefed up compliance while continuing to raise money and outperform the markets. Even as regulators examine past trades by the firm, SAC is up nearly 10 percent this year.
In the case of Mr. Soros, his enormous wealth means he can do whatever he wants. Smaller managers who once relied on governmental exemptions to avoid regulation do not have the luxury of walking away from public investors.
“Not many of them are saying, ‘I’m going to get out of it and not do it because of these rules,’ ” said Richard Schetman, a partner at the law firm Cadwalader, Wickersham & Taft. “Soros has enough money at this stage in this career that it’s a choice, and he’s made it.”
Mr. Soros’s fund has been closed to outside investors since 2000, when Mr. Druckenmiller left the firm to lead Duquesne Capital Management.
The Quantum fund, which has existed in many iterations in its more than 40-year history, has returned about 20 percent a year on average, according to a person briefed on the matter. This year, the fund is down 6 percent, said the person, who spoke on condition of anonymity because the information was private.
When it becomes a family office, the operation will continue with its more than 200 employees, of whom 100 are investment professionals.
In the letter to investors, the firm also said that Keith Anderson, chief investment officer at Soros since 2008, would leave. It is unclear where Mr. Anderson, an alumnus of the asset manager BlackRock, will go next. Bloomberg News earlier reported the changes at the fund.
The designation as a family office will allow Mr. Soros’s fund to skirt two of the most significant regulations facing hedge funds under the Dodd-Frank act financial regulatory overhaul. It will no longer have to register with the Securities and Exchange Commission, avoiding paperwork and crucial disclosures about the business, like trading strategies. In addition, the fund avoids having to hand over extensive data to the Financial Stability Oversight Council, which monitors institutions that pose the greatest risk to the economy.
“It’s akin to a private jet,” said Thomas R. Livergood, chief executive of the Family Wealth Alliance, a family office consultancy. “George Soros doesn’t want to fly United. It’s about privacy and control.”
While exact figures are hard to come by, family offices are estimated to manage assets of about $2 trillion, according to the Family Wealth Alliance.
Forbes magazine has estimated Mr. Soros’s net worth at $14.5 billion this year. But the relatively small amount of outside money in the fund suggests that the majority of the $25 billion remaining belongs to Mr. Soros — an indication that his net worth could be much higher than previously thought.
In the hedge fund industry, Mr. Soros is seen as an icon. Although he ceded day-to-day management of the fund to others decades ago, his longevity has left him as one of the few remaining lions of a bygone era.
Mr. Soros was born in Budapest in 1930. In 1944, the Nazis occupied Hungary and Mr. Soros’s father obtained false identification that helped them evade detection as Jews.
In 1947, Mr. Soros escaped Communist Hungary for London, where he graduated from the London School of Economics. His career on Wall Street began in the 1950s. He worked as a trader and an analyst at several firms before founding his own hedge fund in 1973 with $12 million, mostly investor money.
His huge gains have come from macro bets, which aim to profit from global economic trends by trading currencies, commodities, bonds and other securities. Mr. Soros made his name, however, betting on currencies.
In 1992, Mr. Soros’s firm made a $10 billion bet against the British pound, believing that the nation would have to devalue its currency. In a pitched battle against the Bank of England, which was defending the pound, Mr. Soros won out, earning more than $1 billion.
Through much of his career, Mr. Soros has viewed himself as something of a philosopher and a statesman, espousing market theories steeped in the study of the human psyche. He has written a dozen books, as well as countless essays and articles for news organizations. He has also been deeply involved in philanthropy and promoting liberal causes, a mission his most recent move is only likely to bolster.
Last month, in an essay for The New York Review of Books, Mr. Soros wrote about how his wealth had empowered him to take a stand when others could not, a freedom that has granted him great satisfaction.
“In short, my philanthropy has made me happy,” he wrote. “What more could one ask for?”
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