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.


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