Soros To Return $1 Bilion Capital To External Investors To Avoid Registering His $25 Billion Hedge Fund

Tyler Durden's picture

Bloomberg reports that George Soros will return client capital, and will focus exclusively on managing his own and his family's money, apparently in an indirect protest against the reporting hedge fund requirement of Dodd Frank. Since the capital in question is only about $1 billion of $25.5 billion, this is hardly the big move some are making it out to be, as the bulk of Soros Fund Management is already primarily funded by his own money. Also notable, is that Keith Anderson, the company's COO, has decided to depart. But yes: for all those who wished they could have given money to Soros to manage for them, it is now too late. As for the reason for the change: "Soros’s sons said they took the decision because new financial regulations would have made it necessary for the firm to register with the Securities and Exchange Commission by March 2012 if it continued to manage money for outsiders. Because the firm has overseen mostly family assets since 2000, when outside money accounted for about $4 billion, they decided it made more sense to run it as a family office, according to the letter." Expect to see many more hedge funds based on family capital, for whom external investors are merely a nuisance, do the same thing.

From Bloomberg:

George Soros, the billionaire best known for breaking the Bank of England, is returning money to outside investors in his $25.5 billion firm, ending a career as hedge-fund manager that spanned more than four decades.

 

Soros, who turns 81 next month, will hand back the money, less than $1 billion, by the end of the year, according to two people briefed on the matter. His firm will focus on managing assets solely for Soros and his family, according to a letter to investors. Keith Anderson, 51, chief investment officer since February 2008, is leaving, said the letter, signed by Soros’s sons Jonathan and Robert, who are co-deputy chairmen.

 

“We wish to express our gratitude to those who chose to invest their capital with Soros Fund Management LLC over the last nearly 40 years,” they said in the letter. “We trust that you have felt well rewarded for your decision over time.”

 

The move completes Soros’s transformation from a speculator, who in 1992 made $1 billion betting that the Bank of England would be forced to devalue the pound, to philanthropist statesman, a role he first imagined for himself as a Hungarian émigré studying at the London School of Economics after World War II, according to Soros’s writings. In the last 30 years, he’s given away more than $8 billion to promote democracy, foster free speech, improve education and fight poverty around the world, he said in a recent essay.

 

Soros’s sons said they took the decision because new financial regulations would have made it necessary for the firm to register with the Securities and Exchange Commission by March 2012 if it continued to manage money for outsiders. Because the firm has overseen mostly family assets since 2000, when outside money accounted for about $4 billion, they decided it made more sense to run it as a family office, according to the letter.

 

The rule calls for hedge funds with more than $150 million in assets to report information about their investors and employees, the assets they manage, potential conflicts of interest and their activities outside of fund advising. Registered funds will also be subject to periodic inspections by the SEC.

 

“We have relied until now on other exemptions from registration which allowed outside shareholders whose interests aligned with those of the family investors to remain invested in Quantum,” the executives said in the letter, referring to its flagship Quantum Endowment Fund. “As those other exemptions are no longer available under the new regulations, Soros Fund Management will now complete the transition to a family office that it began eleven years ago.”

And some more on Soros' illustrious capital markets history:

While Druckenmiller was the architect of the $10 billion British pound trade, which forced the currency out of the European exchange-rate mechanism, Soros served as a coach to the younger man, encouraging him to increase his bet.

 

Druckenmiller left in 2000, together with another star manager, Nick Roditi, after losses when the technology bubble burst. Just two years before, the firm had been the biggest hedge fund in the world with $22 billion in assets, and Soros said it was too much money to manage in such concentrated positions.

 

After the departures, Soros decided to farm out more money to portfolio managers both inside and outside Soros Fund Management. He said he would settle for a 15 percent annualized return, about half of what the fund had posted since its start.

In 2007, as the subprime mortgage crisis was gaining speed, Soros again stepped in. Quantum returned 32 percent that year and posted an 8 percent gain in 2008, when funds on average dropped about 19 percent. Overall, Quantum Endowment grew from about $11 billion in June 2000 to today’s level.

 

The firm went through several chief investment officers, including Soros’s son Robert, before hiring Anderson, who was a co-founder at BlackRock Inc. and its global fixed-income chief.

 

The uncertainty about markets and Quantum’s 6 percent dive caused Anderson to sell positions in mid-June and the firm is now holding about 75 percent cash. It hasn’t been decided whether Jonathan and Robert will hire a new CIO, or whether they will add to their stable of external managers.

 

In the meantime, Soros continues to focus on his philanthropy and on voicing his views on macroeconomic events, such as the sovereign debt crisis in Europe.

 

“My success in the financial markets has given me a greater degree of independence than most other people,” Soros wrote in his recent essay. “This obliges me to take stands on controversial issues when others cannot, and taking such positions has itself been a source of satisfaction. In short, my philanthropy has made me happy.”

Expect nothing but the same day to day operations out of Soros Fund Management for whome $1 billion is a drop in the bucket.