The Man Who Broke The Bank Of England To Retire

Published in Investing on 26 July 2011

George Soros is to hang up his hedge fund management hat.

Back in 1992, he made a reported billion dollars by shorting sterling and helping force the pound out of that half-baked idea known as the European Exchange Rate Mechanism. He was demonised by some for it, but I reckon he did us a big favour.

Since then, George Soros has become one of the world's best-known investors, He's still going strong at the age of nearly 81 after more than four decades in the hedge fund management business, and throughout his career has donated an estimated $8 billion for the furthering of free speech and democracy, and to help alleviate poverty and improve education in various parts of the world.

But now he is withdrawing from hedge fund business to concentrate on his family's interests, and will return around $1 billion to outside investors.

New regulations

The move is ostensibly due to new regulations in the US, which will require all hedge fund management businesses to register with the Securities and Exchange Commission by March 2012, and hand over some details of how their funds are managed.

But with that $1bn of outside investors' funds dwarfed by the $25bn of Soros family money under management, Mr Soros and his sons have decided it makes more sense to hand it back and turn the business into a family office.

While many will welcome closer regulatory scrutiny of the US investment industry, it is hard to deny that this move will deprive investors of some quite remarkable investment talent. Though down over the past 18 months, the Soros Quantum fund is said to have returned an average of around 20% per year since its inception in its original guise in 1969, according to someone close to the fund.

Not the first, not the last

The Soros business is not the first to close its doors to outside investors, and it surely won't be the last. Stanley Druckenmiller, a former Soros deputy who left in 2000 to open his own fund, closed his to outsiders last year to similarly concentrate on managing his own cash, and others have since followed suit.

For those finding their money unexpectedly handed back to them, there are plenty of up-and-coming new fund managers waiting to step into the breach as the more experienced ones step back.

Will the new regulations bring a renewed and more open approach to hedge fund management, or are we seeing an end to an era which investors of the future will only hear about as history? Only time will tell.

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Comments

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jaizan 26 Jul 2011 , 9:41pm

Soros is a great investor.

However what matters to me as an investor is:

EITHER: Identifying the next serial outperformer like a Soros, Bolton, Lynch or Buffet. Suggestions with long term track records are welcome.

OR: Managing to outperform with my own modest portfolio.

DIYIncome 27 Jul 2011 , 8:25am

Jaizan,

I would say (but then I would, wouldn't I) that it might be better to 'invest' in your own investing skills, as it will be almost impossible to find an outperformer in advance.

Spending the time developing your own investing approach will increase your own knowledge and skills, which can be used profitably over many future years.

I cut my own hair, too!

MonsterMixer 27 Jul 2011 , 9:10pm

Um he hasnt retired.

jaizan 27 Jul 2011 , 10:04pm

DIYIncome,

I'm constantly trying to develop my investing approach. I do OK too.

However, I'm not sure its necessary to identify outperformers in advance. With the likes of Anthony Bolton and Warren Buffet, identifying them after 10 years would have been sufficient to get many years of subsequent outperformance.

Secondly, I like to have a globally diversified portfolio. However, stockpicking in several markets takes too much time. Then there are forex losses. So buying shares in an IT, such as Scottish Oriental Smaller Companies is a good alternative.

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