July 26 (Bloomberg) -- George Soros, the billionaire bes tknown for breaking the Bank of England, is returning money to outside investors in his $25.5 billion firm, ending a career ashedge-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 twopeople briefed on the matter. His firm will focus on managingassets solely for Soros and his family, according to a letter toinvestors. 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 toinvest their capital with Soros Fund Management LLC over thelast nearly 40 years,” they said in the letter.“We trust thatyou have felt well rewarded for your decision over time.” The move completes Soros’s transformation from aspeculator, who in 1992 made $1 billion betting that the Bank ofEngland would be forced to devalue the pound, to philanthropiststatesman, a role he first imagined for himself as a Hungarianémigré studying at the London School of Economics after WorldWar 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 aroundthe world, he said in a recent essay.
Family Assets : Soros’s sons said they took the decision because newfinancial regulations would have made it necessary for the firmto register with the Securities and Exchange Commission by March2012 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 moresense to run it as a family office, according to the letter. The rule calls for hedge funds with more than $150 millionin assets to report information about their investors andemployees, 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 fromregistration which allowed outside shareholders whose interestsaligned with those of the family investors to remain invested inQuantum,” the executives said in the letter, referring to itsflagship Quantum Endowment Fund. “As those other exemptions areno longer available under the new regulations, Soros FundManagement will now complete the transition to a family officethat it began eleven years ago.”
Druckenmiller’s Move : Soros, who controls more than $24.5 billion for himself,his family and his foundations, declined to comment on theletter. Last year, Stanley Druckenmiller, Soros’s chiefstrategist from late 1988 until 2000, closed his money-management firm, Duquesne Capital Management LLC, and createdhis own family office. While Quantum has returned about 20 percent a year, onaverage, since 1969, when its predecessor was started, accordingto a person familiar with the firm, the fund’s performance hassuffered in the last 18 months. In the first half of this year,Quantum lost about 6 percent, the person said, following a gainof 2.5 percent in 2010. Other macro funds have returned 5.6percent in the last year-and-a-half, according to Chicago-basedHedge Fund Research Inc. Soros was born in Budapest in 1930, as Dzjchdzhe Shorash.When the Nazis invaded the city in 1944, Soros’s father arrangedfor false papers for his family and friends that identified themas non-Jews. Most of the people his father helped survived thewar, Soros said in the essay published in the New York Review ofBooks in late June.
Evil Force: “Instead of submitting to our fate we resisted an evilforce that was much stronger than we were -- yet we prevailed.Not only did we survive, but we managed to help others,” he wrote, adding the experience gave him an appetite for taking 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 andbecame a trader, initially buying and selling stocks for Wall Street brokerage F.M. Mayer. He planned to work for five years,enough time, he reckoned, to save $500,000 and return to Englandwhere he would pursue his philosophical studies, according to aninterview he gave to Michael Kaufman, author of “Soros: TheLife and Times of a Messianic Billionaire.” Instead, he stayed in the world of finance, eventually moved to Arnhold and S. Bleichroeder Advisors LLC, where he setup the predecessor to the Quantum fund in 1969. He started his own firm in 1973.
Conflicting Goals: Over the years, Soros had to deal with conflicting goals of making good and doing good. While Soros’s fund made about $750 million betting on a decline in the Thai baht in 1997, the wager increased economic woes in Thailand as the government spentbillions unsuccessfully defending its currency. In the wake ofthe devaluation, Thailand was forced to cut public spending inexchange for a $17.2 billion rescue package from theInternational Monetary Fund. In 1997, his philanthropic tendencies drove him to buyRussian assets. He took a $1 billion stake in RAO Svyazinvest,Russia’s state-owned telecommunications company, and went on tobuy Russian stocks and bonds. He didn’t sell his positions evenafter publishing a piece in the Financial Times advising thegovernment to devalue the ruble by 15 percent to 25 percent.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 thesociety and integrate them into the G7,” Robert Johnson, aformer Soros managing director, told author Sebastian Mallaby inhis book ‘More Money than God.’ “There’s a philanthropic side of George that started to interfere with the speculative one.” ‘Public Interest’: In his recent essay, Soros echoed the remarks of his formercolleague. “I have made it a principle to pursue my self-interest inmy business, subject to legal and ethical limitations, and to beguided by the public interest as a public intellectual andphilanthropist,” he wrote. “If the two are in conflict, thepublic interest ought to prevail,” he said. Soros opened his first foundation, the Open Society Fund,in 1979, when his fund had reached about $100 million and hispersonal wealth had climbed to about $25 million. His initialfocus was on promoting democracy and a market economy in EasternEurope. Soros now funds a network of foundations that operate in 70 countries around the globe, everywhere from the U.S. toMontenegro to South Africa and Haiti. In late 1988, he hired Druckenmiller to be his chiefstrategist to take over the day-to-day trading of the firm’sassets so he could concentrate on his charitable pursuits.
Breaking the BoE : While Druckenmiller was the architect of the $10 billionBritish pound trade, which forced the currency out of theEuropean exchange-rate mechanism, Soros served as a coach to theyounger man, encouraging him to increase his bet. Druckenmiller left in 2000, together with another starmanager, Nick Roditi, after losses when the technology bubbleburst. Just two years before, the firm had been the biggest hedge fund in the world with $22 billion in assets, and Sorossaid it was too much money to manage in such concentrated positions. After the departures, Soros decided to farm out more moneyto portfolio managers both inside and outside Soros FundManagement. He said he would settle for a 15 percent annualizedreturn, about half of what the fund had posted since its start.
Stepping In : In 2007, as the subprime mortgage crisis was gaining speed, Soros again stepped in. Quantum returned 32 percent that yearand posted an 8 percent gain in 2008, when funds on average dropped about 19 percent. Overall, Quantum Endowment grew fromabout $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 aco-founder at BlackRock Inc. and its global fixed-income chief. The uncertainty about markets and Quantum’s 6 percent divecaused Anderson to sell positions in mid-June and the firm isnow holding about 75 percent cash. It hasn’t been decidedwhether 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 agreater degree of independence than most other people,” Soros wrote in his recent essay. “This obliges me to take stands oncontroversial issues when others cannot, and taking suchpositions has itself been a source of satisfaction. In short, my philanthropy has made me happy.”
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