Money Speculator Soros Weathers $600-Million Blow : Currency: The widely watched billionaire, who manages the international Quantum Group funds, appears to have shaken off the rumors that he is in financial trouble.
There are, no doubt, a few central bankers around the world who would not mind seeing the wheel of fortune turn against George Soros, the billionaire speculator whose huge bets on currency movements have wrecked the monetary policies of some countries.
The Economist magazine called him the “Man Who Broke the Bank of England,” after his speculation against the British pound helped force Britain to drop out of Europe’s exchange rate mechanism in 1992, and temporarily wrecked the hopes for a common European currency. That bet earned Soros and the investment funds he oversees $1 billion.
But while the 63-year-old Soros suffered an unaccustomed major loss of $600 million in one day last month--prompting rumors that he was in financial trouble--the Soros empire appears to have taken it in stride.
Soros, along with a lot of other managers of big international hedge funds, got caught by the recent wild gyrations of the world currency and bond markets. In his case, his Quantum Group of funds wagered Feb. 14 that the yen would continue to fall against the dollar. Instead, the Japanese currency surged 5% the same day, after trade talks between the United States and Japan broke down.
A Soros spokesman, who insisted that his name not be used, said the loss was partly offset by gains since the beginning of the year, leaving the Quantum Funds down only about 2.7%. He said the impact of the $600-million loss was spread evenly among the individual funds. He said the Soros empire has about $12 billion in assets under its management.
“There have been a lot of rumors that have blown it out of proportion,” the spokesman said, noting that Soros receives intense attention because of the extraordinarily successful record of his funds, which were up 60% to 70% last year. In recent years, the funds have appreciated at an average annual rate of 40%.
A manager at a rival global hedge fund, who also didn’t want his name used, said losses like the one Quantum suffered are merely “fairly normal volatility given the nature of these funds’ big trades.”
A Hungarian Jew who managed to escape from the Nazis, Soros after the war got a degree at the London School of Economics. He began working on Wall Street in 1956 as an analyst and currency trader.
He founded the Curacao-based Quantum Fund in 1969, which has been open only to non-U.S. investors. Lately, he has left much of the daily management of the funds to his deputy, Stanley F. Druckenmiller, while Soros pursues a consuming interest: Donating hundreds of millions of dollars toward rebuilding Eastern Europe.
His speculation against certain national currencies and his sometimes vitriolic public criticism of central bank policies, however, has left him with potential enemies in high places.
“Say you’re the senior person at the Bank of England, you make the equivalent of $45,000 a year, you have three degrees and have written learned monographs, and you’ve been reading for the last year and a half that Mr. George Soros has been saying what a moron you are,” explains James Grant, editor of Grant’s Interest Rate Observer in New York. “Mr. Soros has inflamed the animosity of the global regulatory community against him.”
Grant also says that for a hedge fund manager, a notoriously private breed, Soros has made himself conspicuous by his very public philanthropy in Eastern Europe.
“It’s an unwritten rule,” Grant says, “that you do not go bruiting your success or flashing your wallet,” and warns that Soros might be inviting retribution. “He seems to be flying very close to the sun.”
The great unknown with hedge funds is the amount of borrowed money used in speculation. The funds typically borrow huge sums to leverage their bets. By doing so, profits can be greatly magnified.
But if the market goes against the speculator, the same use of borrowed funds can multiply losses, leading to potentially disastrous results depending on the amount of money involved.
Soros, however, has weathered big losses before. According to published reports, the Quantum Funds lost $800 million a short while before the October, 1987, stock market crash, betting the wrong way on Japanese stocks.