Soros steps back, not down

Investment icon George Soros – best known as the man who broke the Bank of England – is hanging up his spurs as a hedge fund manager.

Overnight the 81-year-old’s group Soros Funds Management announced that it was returning money to outside investors and would transform itself into a family office, managing money for the Soros family and other select clients.

“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,” Soros’s sons Jonathan and Robert, who are co-deputy chairmen of the investment firm, wrote in a letter to investors. “We trust that you have felt well rewarded for your decision.”

The firm’s long-standing chief investment officer, Keith Anderson, will leave as part of the change.

While the move brings an extraordinary successful run to an end – according to the Financial Times, the firm has returned $35 billion for its investors since it was established in 1973 – the change won’t lessen the power that Soros has in global financial markets.

Only about $US1 billion of the $US25 billion controlled by Soros Funds Management will be returned to outside investors – the rest is already money owned by family or close associates.

The real reason for the change is regulation. Under the Frank-Dodd regulatory regime introduced last year in the US to clean up Wall Street, hedge funds will be forced to register with the Securities & Exchange Commission and will face a much higher level of scrutiny than in the past.

But there is an exemption for family offices. By taking advantage of this, SFM will be able to protect information about its investors and investments.

“An unfortunate consequence of the new circumstances is that we will no longer be able to manage assets for anyone other than a family client as defined under the regulations,” the firm said in its letter to investors.

Soros, who is worth $US14.5 billion according to Forbes, is one of a number of high-profiled investors to have returned capital to investors. These include activist investor Carl Icahn and a former protégé of Soros, Stan Druckenmiller.

Of course, with $25 billion or so to play with, Soros still has plenty of financial firepower to make his traditionally bold investment plays.

Soros is most famous for his 1992 decision to sell short $US10 billion of British pounds, betting that the pound would fall. When the Bank of England was forced to withdraw the currency from the European Exchange Rate Mechanism, the pound fell and Soros earned about $US1.1 billion. He made $US750 million betting against the Thai baht five years later.

In recent times, Soros has stretched his investment reach to Australia, investing in copper miner Marengo Mining and Sphere Investments, which is focused on developing iron ore assets in West Africa.

But perhaps Soros’ most pressing task is to start turning around the performance of his fund, which returned just 2.6% last year and has actually lost money in 2011.