Soros Hands Control of Hedge Fund Firm to His Sons (Update4)
Oct. 5 (Bloomberg) -- Billionaire George Soros is handing greater control of his $12.8 billion money management firm to his sons, Robert and Jonathan, and spinning off his real estate, credit and buyout units, a memo sent to investors and staff said.
Soros's decision to scale back his New York-based firm's operations marks a turnaround from two years ago when he hired Mark Schwartz, a 22-year veteran of Goldman Sachs Group Inc., as chief executive officer to expand the business. In 2002, Soros, who's now 74, said Schwartz's job was ``to build an organization that will be preeminent in money management.''
``During the past year, we have worked to simplify the structure in order to return the firm to its core activity as a hedge fund manager,'' Schwartz, 54, wrote in the memo.
Robert Soros, 41, who last month was named head of the $8.3 billion Quantum Endowment Fund, and Jonathan Soros, 34, will become co-deputy chairmen of Soros Fund Management LLC, according to the memo, which was released yesterday. Their father remains chairman.
Soros's firm, started in 1973, oversaw more than $20 billion in the 1990s when it ranked as the world's largest hedge fund group. Then, Soros moved global markets, making bets with borrowed money and producing average returns of about 30 percent a year.
In 1992, Soros and his chief strategist Stanley Druckenmiller earned about $1 billion from a bet on a drop in the British pound after the U.K. government abandoned sterling's peg to a basket of European currencies. Other successful trades included a bet that the deutsche mark would rise after the collapse of the Berlin wall and a wager that Japanese stocks would start to tumble in 1989.
Management Shakeup
In the reorganization, Richard Georgi, who heads Soros's property group, left to start Grove Capital LLP, the memo said. Steven Mnuchin, a former Goldman Sachs executive who oversees Soros's credit team, which provides financing such as convertible bonds and real estate loans and trades distressed debt, is forming Dune Capital Management LP.
Schwartz created the credit unit and hired Mnuchin to run it, saying at the time that he expected the business to grow to several billion dollars by the end of 2005.
Mnuchin and Georgi, who didn't return calls seeking comment, will continue to manage money for Soros, the memo said.
Hungarian-born Soros may spin off the buyout group started by Frank Sica, a former Morgan Stanley investment banker, and now led by Neal Moszkowski and Ramez Sousou. An agreement hasn't been completed, the memo said. Sica will stay at Soros.
Soros's Sons
Schwartz hired traders, including Colm O'Shea from Citigroup Inc. and Jacob Goldfield from Goldman Sachs, since taking over as chief executive at the start of 2003. Goldfield was named chief investment officer. Two weeks ago, Goldfield, 45, left to start his own hedge fund. Soros may invest with Goldfield's new firm, the memo said.
The Quantum Endowment fund rose 19 percent during Goldfield's 16-month tenure, according to data compiled by Bloomberg. The gain compared with the average 16.7 percent return of other ``macro'' funds, which trade currencies, commodities, stock and bonds.
Robert Soros is the eldest of George Soros's five children. After graduating from New York University in 1986 with a degree in English literature, he joined Soros Fund Management and then left to take other jobs, including a stint at German bank Schroder Munchmeyer Hengst & Co.
He returned in 1994, and two years later helped run Quantum Industrial Holdings, the firm's private equity fund before moving over to the Quantum Endowment Fund.
Like his father, Jonathan Soros has been involved in political activism, working with MoveOn.org and America Coming Together, political action groups that are pushing to unseat U.S. President George W. Bush in the November election. Jonathan Soros met his wife Jennifer in 1992 working on the Clinton-Gore campaign.
`Next Generation'
``I think my son Jonathan is likely to take my political legacy much further,'' Soros said in an interview last week.
Jonathan Soros graduated from Wesleyan University in 1992 and has a law degree and a master's in public policy from Harvard University. He has worked in the firm's buyout group for two years.
``It's natural to allow his sons the room to build their own business and at the same time allocate money to the next generation of managers worthy of Soros's trust and insight,'' said Philippe Bonnefoy, the head of Comas Management, an adviser to the alternative investment unit of Commerzbank Securities.
Soros and his family account for a majority of the money in the Quantum Endowment fund. He uses proceeds from his investments to fund philanthropic work such as the Open Society Institute, which promotes education, public health and economic programs in more than 50 countries.
Political Activism
For the past year, he's given away at least $12.6 million to so-called 527 groups, named for the Internal Revenue Service Code that gives them tax-free status. These organizations can raise unlimited funds for political advertising and voter registration. One such group backed by Soros is America Coming Together, which pays canvassers $8 to $12 an hour to go door-to-door in 17 states, including Florida, Ohio and Pennsylvania where Bush and Senator John Kerry, his opponent, are running even in the polls.
Soros has said he will make speeches this month in 11 cities in so-called battleground states.
He started distancing himself from making day-to-day investment decisions in 1989 to focus on philanthropy, placing that responsibility with Druckenmiller. He wasn't able to step away entirely from the business, however, and often second-guessed his managers.
When the Quantum fund lost 22 percent of its net assets in March and April of 2000 after a tumble in technology stocks, Soros argued that the firm should sell certain Internet holdings.
Druckenmiller's Departure
Druckenmiller and trader Nicholas Roditi left soon after the dispute. Following the departures in April 2000, Soros changed the name of his fund to Quantum Endowment Fund to reflect a more conservative approach to investing.
Since then, a $1 million investment in the fund would have grown to $1.38 million at the end of August. The average macro fund would have produced $1.98 million in the same period, according to the CSFB/Tremont Global Macro Hedge Fund Index.
Even though the firm's 8 percent annualized return is below the target of 15 percent a year Soros set in 2000, Soros said he's content with the performance.
``I'm happy for the moment because we have greatly reduced risk,'' Soros said in the Sept. 29 interview. ``The new team, led by my son, will have to demonstrate their ability to earn money.'' |
