Saturday, July 30, 2011

Billionaire Soros going it alone

Man who broke the Bank of England returns money to investors, to concentrate on philanthropy.

George Soros, the billionaire best known for breaking the Bank of England, is returning money to outside investors in his US$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 US$1 billion ($1.14 billion), by the end of the year. His firm will focus on managing assets solely for Soros and his family, says a letter to investors.

"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," says the letter signed by Soros' sons Jonathan and Robert. "We trust that you have felt well rewarded for your decision over time."

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

Soros' sons say they took the decision because new financial regulations would have made it necessary for the firm to register with the US Securities and Exchange Commission if it continued to manage money for outsiders. Because the firm has overseen mostly family assets since 2000, they decided it made more sense to run it as a family office, says their letter.

Soros was born in Budapest in 1930, as Dzjchdzhe Shorash. When the Nazis invaded the city in 1944, Soros' father arranged for false papers for his family and friends that identified them as non-Jews. Most of the people his father helped survived the war, Soros said in the essay, published in the New York Review of Books late last month.

"Instead of submitting to our fate we resisted an evil force that was much stronger than we were - yet we prevailed. Not only did we survive, but we managed to help others," he wrote, adding that the experience gave him an appetite for risk. "This left a lasting mark on me, turning a disaster of unthinkable proportions into an exhilarating adventure."

After London, Soros came to New York at the age of 26 and became a trader, initially buying and selling stocks for a Wall Street brokerage. He planned to work for five years, enough time, he reckoned, to save US$500,000 and return to England where he would pursue his philosophical studies, according to an interview he gave to Michael Kaufman, author of Soros: The Life and Times of a Messianic Billionaire.

Instead, he stayed in the world of finance, eventually setting up the predecessor to his Quantum fund in 1969. He started his own firm in 1973.

Quantum has returned about 20 per cent a year, on average, since 1969, says a person familiar with the firm, though it lost about 6 per cent in the first half of this year, and made only 2.5 per cent last year.

Over the years, Soros had to deal with the conflicting goals of making good and doing good. While his fund made about US$750 million betting on a decline in the Thai baht in 1997, the wager increased economic woes in Thailand as the government spent billions unsuccessfully defending its currency, and had to cut public spending.

In 1997 his philanthropic tendencies drove him to buy Russian assets. He took a US$1 billion stake in Russia's state-owned telecommunications company, and went on to buy Russian stocks and bonds. He didn't sell his positions even after publishing a piece in the Financial Times advising the government to devalue the ruble. Four days later, Russia followed his advice.

"He felt that if he was a beacon of investment in Russia, others would follow and the capital inflows would transform the society," Robert Johnson, a former Soros managing director, told author Sebastian Mallaby in his book More Money than God. "There's a philanthropic side of George that started to interfere with the speculative one." In his recent essay, Soros echoed the remarks of his former colleague. "I have made it a principle to pursue my self-interest in my business, subject to legal and ethical limitations, and to be guided by the public interest as a public intellectual and philanthropist," he wrote.

"If the two are in conflict, the public interest ought to prevail."

Soros opened his first foundation, the Open Society Fund, in 1979, when his fund had reached about US$100 million and his personal wealth had climbed to about US$25 million. His initial focus was on promoting democracy and a market economy in Eastern Europe. Soros now funds a network of foundations that operate in 70 countries. In late 1988, he hired Stanley Druckenmiller to be his chief strategist to take over the day-to-day trading of the firm's assets so he could concentrate on his charitable pursuits.

While Druckenmiller was the architect of the US$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, after losses when the technology bubble burst. In 2007, as the subprime mortgage crisis was gaining speed, Soros stepped in. Quantum returned 32 per cent that year and posted an 8 per cent gain in 2008, when funds on average dropped about 19 per cent. Overall, Quantum Endowment grew from about US$11 billion in June 2000 to today's level.

The uncertainty about markets and Quantum's recent fall meant it sold investments last month and the firm is now holding about 75 per cent cash.

Soros continues to focus on his philanthropy and on voicing his views on macroeconomic events.

"My success in the financial markets has given me a greater degree of independence than most other people," Soros wrote recently. "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."

How Much?

George Soros' wealth totalled US$14.5 billion as of March ($16.6 billion at current exchange rates), according to Forbes magazine. That made him the 46th-wealthiest person in the world.


Tuesday, July 26, 2011

Kiwi dollar bulldozes its way over US87c

The New Zealand dollar exchange rate bulldozed its way to yet another post-float high against the US dollar today, touching US87.08c as the greenback slumped.

The surge has left the kiwi within striking distance of doubling its nominal value - US44c - when it was floated in March 1985.

After spiking three times to US87c or above, the New Zealand dollar retreated a little to trade at US86.93c at 5pm, compared to US86.50c at the same time yesterday.

Reuters reported that stop-loss buy orders around the world were triggered following a rise in the exchange rate for the euro against the greenback. Such stop-loss orders were used to protect wealth by automatically placing a "sell" order when the price of a commodity - or currency such as the US dollar - dropped below a specified threshold.

The kiwi had earlier dipped to a relative "low" of US86.13 after weaker than expected trade data, but soared higher - with the Australian dollar and the euro - as speeches and statements by US politicians raised concerns over the political impasse in Washington.

US President Obama warned in an address to the nation that burgeoning US debt could cause serious damage to the world's largest economy if the Congress can't agree on raising the debt ceiling of US$14.3 trillion.

Investors poured into perceived safe-haven assets - such as the commodities-driven New Zealand and Australian currencies - and pushed gold to a record high and created an exchange rate for the Swiss franc at an all-time peak against the US currency.

"Stops were triggered in euro...that's taking everything higher," HSBC's NZ head of institutional sales Daniel Brdanovic told Reuters.

"We're not seeing really too much flows. People are still staying on the sidelines as much as possible...waiting for some resolution out of the US," he said.

The New Zealand dollar has risen over 5 per cent this month and 20 per cent this year. It was last at these levels in mid-1981, when the currency was still regulated by the Muldoon Government's central bank. The gains have been underpinned by improving economic data and expectations of interest rate rises.

At 5pm the NZ dollar was buying 0.6005 euro, down a little on yesterday's level at the same time of 0.6017 euro, while slipping to A79.63c against the Australian dollar from A79.96c, and to 67.86 yen from 67.89, over the same period.

The trade weighted index was 74.07 at 5pm from 74.06 yesterday.

ANZ bank said that the NZ dollar remained a currency in vogue.

Across the Tasman, Reserve Bank of Australia governor Glenn Stevens did little to dampen expectations of another interest rate rise. The central bank chief said Australian consumer spending would eventually ramp up from the sluggish pace of recent years, and the shift could come soon if some uncertainties over the global outlook were to ease. The Australian dollar was US$1.0918 at 5pm, from US$1.0818 at the same time yesterday.

The euro rose to US$1.4477 at 5pm, from US$1.4375 yesterday, and the Japanese currency also strengthened against the US dollar to 78.07 yen, 78.48 yen.