For-profit

Soros Fund Management

Soros Fund Management is a private investment management firm headquartered in New York. Left-progressive political-donor billionaire George Soros founded the firm in 1973, though its name has changed numerous times throughout its existence. Soros Fund Management operated as a hedge fund until 2011, when it became a family fund, returning outside investments and retaining only funds managed on behalf of the Soros family. [1]

The Soros Fund Management also operates the Soros Fund Charitable Foundation, a 501(c)(3) private grantmaking foundation.

Early History

In 1969, while working at the New York investment company Arnhold and S. Bleichroeder, George Soros created the Double Eagle hedge fund with $4 million dollars invested, some of which was his own money. [2] In 1973, Soros and partner, Jim Rogers, left Arnhold and Bleichroeder to manage the $12 million Double Eagle hedge fund, which they renamed the Soros Fund. [3] In 1978, Soros renamed the fund again, this time calling it the Quantum Fund, a reference to the work of physicist Werner Heisenberg, whose quantum uncertainty principle Soros saw reflected metaphorically in markets. Within a year, the fund had grown to over $18 million. [4]

Of his partnership with Jim Rogers, Soros said that Rogers “did all the work,” and Soros “made all the decisions.” This division of labor worked for them, as the fund grew a great deal. [5] However, the two men had different ideas about their fund. Soros wanted to grow, adding staff, while Rogers struggled to work well with others and preferred the two-man operation of the earlier days. In early 1980, Rogers departed and Soros continued running the fund. [6]

By 1980, the Quantum Fund was worth $100 million. By 1981, it was worth $381 million. By 1987, Quantum was up to $21.5 billion in assets, and Soros himself was worth $100 million. [7] [8]

In 1981, Institutional Investor called George Soros “the world’s greatest money manager.” However, that same year, the Quantum Fund took a 22.9% annual loss. [9] Soros was going through a mid-life crisis, his attention beginning to turn to philosophy and philanthropy, and, he said, “I relaxed my self-discipline.” [10]  The difficult year caused Soros to delegate responsibilities and refocus himself on other pursuits. He had already been looking for a new partner, but the collapse of Quantum Fund from $400 million down to $200 million led Soros to retire from active management, and delegated responsibility for the remaining funds to outside managers. However, the next few years were “lackluster,” and so Soros decided to return to active management in 1984. Soros said that, “In order to get myself intellectually engaged again in investing, I decided to write a book about my approach to investments.” The book was The Alchemy of Finance, which covered his theory of investment, as well as the process of his enormously successful currency speculation – a bet against a softening U.S. Dollar, during the Plaza Accord deal, which Soros called “the killing of a lifetime.” [11]

Currency Speculation

Notable Investments

While making a diverse array of investments, Soros Fund Management (or its predecessor entities) has often specialized in currency speculation. In 1986, Soros pointed to “big killings in currencies, namely the West German mark and the [Japanese] yen” as a substantial reason for recent success. [12]  In 1992, Soros famously “shorted” the British pound, leading to him being called “The man who broke the Bank of England.” [13]

In 1997, Soros bet $1 billion against the Thai baht. Soros was not the only investor betting against the baht – the Tiger Fund had a $3 billion bet – but his previous success in currency speculation made him the most famous. Attempting to limit the devaluation of their currency, the Bank of Thailand took counterproductive steps, including raising interest rates and limiting foreign access to the baht. This only delayed the collapse of the Thai currency, and the result was painful. The collapse gradually spread to other Asian countries, resulting in the Asian Financial Crisis. While Soros was blamed by some Asian leaders, including the Malaysian Prime Minister, Soros himself pointed to the response by the Bank of Thailand, saying, “Had the authorities responded to the depletion of their reserves, the adjustment would have occurred sooner and been less painful. But the authorities allowed their reserves to run down; the break, when it came, was catastrophic.” [14] In 2013, Soros made $1.2 billion betting against the Japanese yen. [15]

However, Soros has not always succeeded in currency speculation. In 1994, Soros lost $600 million when US-Japan trade talks collapsed and it turned out that Soros “bet the wrong way on the direction of the Japanese yen’s value relative to the dollar.” [16] Soros Fund Management has suffered market downturns, as well. In addition to the losses in 1981, Soros lost $800 million during the U.S. “Black Wednesday” market collapse in 1987. [17] In 1998, Soros lost an estimated $2 billion in a Russian economic collapse. [18] At the time, Soros had extended bridge loans to the Russian government and “joined a consortium to buy 25 percent of Russian communications giant Svyazinvest,” a privatization that led to fierce fighting among Russian oligarchs. The resulting 1998 economic collapse undermined the financial progress Soros had made in Russia and his confidence in Russia’s political stability. Two years later, Soros expressed support for, but also concern over, Russian President Vladimir Putin’s plan to consolidate the power of the Russian central government. [19] Of his Russia investment and loss, Soros has said, “Never have I been screwed so much since Russia. For them, they get a satisfaction out of doing it. It was the biggest mistake of my investment career.” [20]

International Criticism

Soros’s success in currency speculation has engendered resentment around the world. The editor of Interest Rate Observer said that, “Mr. Soros has inflamed the animosity of the global regulatory community against him.” [21] Famed financial writer Michael Lewis pointed out that, “The president of the European Community and representatives of the French and Belgian governments have accused him of orchestrating “an Anglo-Saxon plot” to undermine the French currency. The British government blamed him for driving the pound sterling from the European Monetary System. The United States Securities and Exchange Commission leaked allegations that Soros was near the center of Salomon Brothers’ attempt to corner the U.S. government bond markets.” [22]

The Prime Minister of Malaysia denounced Soros (and other currency speculators) in 1997, calling them “morons” for whom “wealth must come from impoverishing others.” [23] In 2002, after Soros was convicted in a French court for insider trading, the same Malaysian Prime Minister said, “I am glad to hear that (about the conviction). It shows that he is not very ethical,” adding that Soros “is the menace to the world’s economy.” [24]

Even co-investors sometimes express wariness about Soros’s reputation. World Bank advisor Gerard Steeghs said that World Bank board members would sometimes express reservations about “doing business with Soros,” due to “a feeling, among some people, that he did something indecent with the pound.” [25]

Druckenmiller Years

In 1988, wanting a new partner to bear more of the management load, George Soros hired Stanley Druckenmiller as a manager of Soros Fund Management. Soros was optimistic, calling Druckenmiller a genius who would take over the fund. However, Druckenmiller was familiar with Soros’s inability to cede control and habit of eventually firing his replacements. Robert Soros, George’s son, told Druckenmiller, “Congratulations, you’re my father’s ninth permanent successor.” [26] While the two got off to a “rocky start,” the collapse of the Soviet Union led George Soros to focus his time and attention on his political activism endeavors, particularly in Hungary, leaving Druckenmiller more space to run the firm. It was Druckenmiller in 1992 who developed the strategy to capitalize on the decline of the British currency. By 1993, four new funds had been spun off from the Quantum Fund and assets totaled $50 billion. [27]

While the Soros Funds performed very well through much of the 1990s, they struggled in 1998 and 1999, due in part to Druckenmiller’s reluctance to invest in tech firms. Druckenmiller left the firm in 2000 to return to his own investment firm. [28]

Family Fund

In April 2011, George Soros gave an interview advocating for more financial regulation and particularly criticizing the Republican Party for financial deregulation. [29] Months later, citing new “regulations recently announced by the US Securities and Exchange Commission” that would “require certain private investment advisers to register with the SEC by March 2012,” George Soros announced that Soros Fund Management would be closing to outside investors and becoming a “family office,” which would allow them to use the “exception” to the regulation. In fact, Soros Fund Management had “effectively operated as a family office since 2000” in order to take advantage of regulatory exemptions. With the new regulations, Soros Fund Management would officially become a family fund, existing only to manage the investments of George Soros and his family. [30] The “family office” designation allowed Soros Fund Management to “skirt two of the most significant regulations facing hedge funds under the Dodd-Frank Act financial regulatory overhaul,” both relating to registration and disclosure obligations. [31]

The transition was easier than it might have been earlier in the life of Soros Fund Management. By the time Soros Fund Management transitioned to a family firm, it was worth $26 billion and had 200 employees, though only $1 billion of its assets belonged to outside investors. Those funds were returned to the outside investors. [32]

The lifetime performance of Soros Fund Management is significant. If an investor had put $1,000 into Soros’s fund when he began in 1969, it would have been worth $4 million by the year 2000. [33]

Political Engagement

George Soros himself has been famously engaged with politics worldwide since the 1980s when he began to establish his Open Society foundations. The Open Society foundations have spent billions on a mix of general charitable causes and overt political activism. Starting in Europe in the 1980s, but quickly expanding to China, the United States, and elsewhere, George Soros planted Open Society foundations throughout the world to address social and governmental issues. This activism resulted from a period in the early 1980s when the Soros investment firm had reached approximately $100 million and Soros’s own personal wealth was around $25 million. Reflecting on his life, Soros concluded that what “really mattered to me was the concept of an open society.” [34] Soros wrote in 1997 that, “When I had made more money than I needed for myself and my family, I set up a foundation to promote the values and principles of a free and open society.” [35]

In 2017, it was revealed that Soros had transferred $18 billion to his Open Society Foundations over the past few years and intended to donate at least $2 billion more in the coming years. In addition, Soros Fund Management also oversees the endowment investments of the Open Society Foundations. [36]

As of 2018, George Soros had donated $32 billion to fund the Open Society Foundations. [37]

In the early 2000s, Soros turned more of his political and Foundation attention towards the United States. Money, Soros said, “led me to oppose [President George W.] Bush very publicly, because I was in a position that I could afford to do it.” Soros was less personally vocal in the post-Bush years, but he hosted fundraisers for then-candidate Barack Obama and donated the family maximum of $80,000 to Obama’s 2008 campaign. [38]

While traditionally a largely profit-driven investment firm, Soros Fund Management has occasionally engaged in shareholder activism. In June of 2014, Soros Fund Management sent a caustic letter to the Board of Directors of the Penn Virginia Corporation, accusing them of “investor relations disasters” and demanding strategic and operations changes to the company. [39]

Soros Fund Management does not engage in lobbying or donating directly to political causes. Employees of Soros Fund Management have donated $8.85 million to political recipients in the 2020 election cycle, with about 80% of the donations going to “Outside Groups” rather than candidates or campaign committees. Of these donations, 99.34% went to Democrats or Democratic Party-aligned groups. [40]

Soros Fund Charitable Foundation

For more on SFCF, see Soros Fund Charitable Foundation

Soros Fund Management operates its own 501(c)(3) non-profit, grantmaking organization, the Soros Fund Charitable Foundation (SFCF). The SFCF is closely affiliated with Soros Fund Management and operated by Soros Fund Management officials who take no compensation for service on the SFCF Board of Directors. At the end of 2018, the SFCF had total assets of $51.5 million with 2018 grants totaling $9.7 million. Recipients included groups like the ACLU Foundation, the Carter Center, the Humane Society International, Barbells for Boobs, and the Michael J. Fox Foundation. [41] In 2013, the Center for Public Integrity accused the Foundation of donating to right-of-center organizations, though the primary examples cited were apolitical Christian groups. [42]

Leadership

Dawn Fitzpatrick is the Chief Investment Officer of Soros Fund Management. Fitzpatrick joined the firm in 2017. She was previously head of Investments for UBS Asset Management.  In addition to her work at Soros Fund Management, Fitzpatrick is also an advisory board member at the Open Society Foundations. [43]

References

  1. Dan McCrum, “Soros to close Quantum fund to outsiders,” July 26, 2011. Financial Times. Accessed September 25, 2020. https://www.ft.com/content/42bd6288-b785-11e0-b95d-00144feabdc0 ^
  2. Calvo-Platero, Mario, “The Great Anticipator,” August 11, 2020, La Repubblica. Accessed September 22, 2020.
    https://www.georgesoros.com/2020/08/11/the-great-anticipator/
    ^
  3. Insider Monkey, “The Latest On George Soros’ Portfolio: He’s Short Emerging Markets And Got Hurt By Gold in January,” Business Insider, February 17, 2011. Accessed September 22, 2020.
    https://www.businessinsider.com.au/george-soros-is-short-emerging-markets-hurt-by-gold-in-january-2011-2 ^
  4. [1] Kaufman, Michael T., Soros: The Life and Times of a Messianic Billionaire,” Knopf, 2002. Accessed September 22, 2020. https://books.google.com/books/about/Soros.html?id=W1Jn4zYBom8C ^
  5. [1] Mallaby, Sebastian, “More Money Than God Hedge Funds and the Making of the New Elite,” Bloomsbury, 2011. Accessed September 22, 2020. https://www.google.com/books/edition/More_Money_Than_God/SuAkejQbpdIC ^
  6. [1] Byron Wien and Krisztina Koenen, “Soros on Soros Staying Ahead of the Curve,” Wiley, 1995. Accessed September 22, 2020. https://www.google.com/books/edition/Soros_on_Soros/h2GuJ0xnhFUC ^
  7. [1] Porter, Anna, “Buying a Better World George Soros and Billionaire Philanthropy,” Dundurn, 2015. Accessed September 22, 2020. https://www.google.com/books/edition/Buying_a_Better_World/8FusBAAAQBAJ ^
  8. [1] Mallaby, Sebastian, “More Money Than God Hedge Funds and the Making of the New Elite,” Bloomsbury, 2011. Accessed September 22, 2020. https://www.google.com/books/edition/More_Money_Than_God/SuAkejQbpdIC ^
  9. [1] Murphy, Brendan, “Finance: The Unifying Theme A profile of financier George Soros,” The Atlantic, July 1993. Accessed September 23, 2020. https://www.theatlantic.com/magazine/archive/1993/07/finance-the-unifying-theme/305148/ ^
  10. [1] Lewis, Michael, “The Speculator,” The New Republic, January 10, 1994. Accessed September 23, 2020. https://newrepublic.com/article/74330/the-speculator ^
  11. [1] Mallaby, Sebastian, “More Money Than God Hedge Funds and the Making of the New Elite,” Bloomsbury, 2011. Accessed September 22, 2020. https://www.google.com/books/edition/More_Money_Than_God/SuAkejQbpdIC ^
  12. [1] Dorfman, Dan, “Quantum Fund’s Manager Keeps Betting on Winners,” Orlando Sentinel, January 30, 1986. Accessed September 22, 2020. https://www.orlandosentinel.com/news/os-xpm-1986-01-30-0190370051-story.html ^
  13. Litterick, David, “The Billionaire who Broke the Bank of England,” September 13, 2002, The Telegraph. Accessed September 23, 2020. https://www.telegraph.co.uk/finance/2773265/Billionaire-who-broke-the-Bank-of-England.html ^
  14. [1] Hargreaves, Rupert, “Here’s how George Soros broke the Bank of Thailand,” Business Insider, September 06, 2016. Accessed September 23, 2020. https://www.businessinsider.com/how-george-soros-broke-the-bank-of-thailand-2016-9 ^
  15. Neate, Rupert, “George Soros ‘makes $1.2bn betting against yen’,” The Guardian, February 15, 2013. Accessed September 23, 2020. https://www.theguardian.com/business/2013/feb/15/george-soros-bet-against-yen ^
  16. Stevenson, Richard, “A $600 Million Miscalculation,” New York Times, February 26, 1994. Accessed September 23, 2020. https://www.nytimes.com/1994/02/26/business/a-600-million-miscalculation.html ^
  17. [1] Scardino, Alberto, “MARKET TURMOIL; A Mutual Fund Wizard’s Hard Fall,” New York Times, October 28, 1987. Accessed September 23, 2020. https://www.nytimes.com/1987/10/28/business/market-turmoil-a-mutual-fund-wizard-s-hard-fall.html ^
  18. [1] Morgenson, Gretchen, “Soros’s Quantum Fund Losses in Russia Put at $2 Billion,” New York Times, August 28, 1998. Accessed September 23, 2020. https://www.nytimes.com/1998/08/27/business/international-business-soros-s-quantum-fund-losses-in-russia-put-at-2-billion.html ^
  19. [1] Lambroschini, Sophie, “Russia: Soros Upbeat On The Economy, Lukewarm On Putin,” Radio Free Europe/Radio Liberty, June 06, 2000. Accessed September 23, 2020. https://www.rferl.org/a/1094114.html ^
  20. [1] Freeland, Chrystia, “The credit crunch according to Soros,” Financial Times, January 30, 2009. Accessed September 23, 2020. https://www.ft.com/content/9553cce2-eb65-11dd-8838-0000779fd2ac ^
  21. [1] Paltrow, Scot, “Money Speculator Soros Weathers $600-Million Blow,” LA Times, March 07, 1994. Accessed September 23, 2020. https://www.latimes.com/archives/la-xpm-1994-03-07-fi-31188-story.html ^
  22. [1] Lewis, Michael, “The Speculator,” The New Republic, January 10, 1994. Accessed September 23, 2020. https://newrepublic.com/article/74330/the-speculator ^
  23. Gargan, Edward, “Premier of Malaysia Spars With Currency Dealer,” New York Times, September 22, 1997. Accessed September 23, 2020. https://www.nytimes.com/1997/09/22/world/premier-of-malaysia-spars-with-currency-dealer.html ^
  24. Staff reporter, “Malaysian Leader Speaks on Soros Ruling,” Associated Press, December 21, 2002. Accessed September 23, 2020. https://apnews.com/13b30af41cf9adb620fe9bef94a627b4 ^
  25. [1] Bruck, Connie, “The World According to George Soros,” The New Yorker, January 16, 1995. Accessed September 23, 2020. https://www.newyorker.com/magazine/1995/01/23/the-world-according-to-soros ^
  26. [1] Mallaby, Sebastian, “More Money Than God Hedge Funds and the Making of the New Elite,” Bloomsbury, 2011. Accessed September 22, 2020. https://www.google.com/books/edition/More_Money_Than_God/SuAkejQbpdIC ^
  27. [1] Rehfeld, Barry, “Soros’s Alter Ego: Low Profile, Very High Returns,” New York Times, April 18, 1993. Accessed September 23, 2020. https://www.nytimes.com/1993/04/18/business/profile-soros-s-alter-ego-low-profile-very-high-returns.html ^
  28. [1] Staff reporter, “Soros Funds Hit Hard By Druckenmiller’s Departure,” Forbes, April 28, 2000. Accessed September 24, 2020. https://www.forbes.com/2000/04/28/mu7.html#5a89ade15cf0 ^
  29. [1] Chopra, Shaili, “India’s importance in world economy has risen: George Soros, Soros Fund Management,” The Economic Times, April 25, 2011. Accessed September 24, 2020. https://economictimes.indiatimes.com/opinion/interviews/indias-importance-in-world-economy-has-risen-george-soros-soros-fund-management/articleshow/8067603.cms?curpg=1 ^
  30. [1] Wall Street Journal, Quantum Group of Funds Letter to Investors, July 26, 2011. Accessed https://online.wsj.com/public/resources/documents/Soros.pdf ^
  31. [1] Ahmed, Azam, “Soros to Close His Fund to Outsiders,” New York Times, July 26, 2011. Accessed September 24, 2020. https://dealbook.nytimes.com/2011/07/26/soros-to-close-fund-to-outsiders/ ^
  32. Wall Street Journal, Quantum Group of Funds Letter to Investors, July 26, 2011. Accessed https://online.wsj.com/public/resources/documents/Soros.pdf ^
  33. Deutschman, Alan, “George Soros,” Slate, March 28, 2001. Accessed September 24, 2020. https://www.salon.com/2001/03/27/soros_2/ ^
  34. Byron Wien and Krisztina Koenen, “Soros on Soros Staying Ahead of the Curve,” Wiley, 1995. Accessed September 22, 2020. https://www.google.com/books/edition/Soros_on_Soros/h2GuJ0xnhFUC ^
  35. Soros, George, “The Capitalist Threat,” The Atlantic, February 1997. Accessed September 24, 2020. https://www.theatlantic.com/ideastour/philanthropy/soros-full.html ^
  36. Gelles, David, “George Soros Transfers Billions to Open Society Foundations,” New York Times, October 17, 2017. Accessed September 24, 2020. https://www.nytimes.com/2017/10/17/business/george-soros-open-society-foundations.html ^
  37. Entrepreneur Staff, “10 Things You Should Know About Billionaire Philanthropist George Soros,” Entrepreneur, December 20, 2018. Accessed September 24, 2020. https://www.entrepreneur.com/article/325201 ^
  38. Freeland, Chrystia, “The credit crunch according to Soros,” Financial Times, January 30, 2009. Accessed September 23, 2020. https://www.ft.com/content/9553cce2-eb65-11dd-8838-0000779fd2ac ^
  39. Securities and Exchange Commission, Soros Fund Management Letter to Penn Virginia Corporation, June 25, 2014. Accessed September 24, 2020. https://www.sec.gov/Archives/edgar/data/77159/000090266414002924/p14-1441exhibit_4.htm?mod=article_inline ^
  40. [1] Open Secrets, Soros Fund Management profile. Accessed September 24, 2020. https://www.opensecrets.org/orgs/soros-fund-management/totals?id=D000000306 ^
  41. [1] Pro Publica, Soros Fund Charitable Foundation, 2018 Form 990. Accessed September 24, 2020. https://projects.propublica.org/nonprofits/display_990/133388177/01_2020_prefixes_13-14%2F133388177_201812_990PF_2020011517034064 ^
  42. Adam Wolner, “Soros Charitable Foundation sometimes leans right,” Center for Public Integrity, June 17, 2013. Accessed September 25, 2020. https://publicintegrity.org/politics/soros-charitable-foundation-sometimes-leans-right/ ^
  43. [1] Open Society Foundations, Dawn Fitzpatrick profile. Accessed September 24, 2020. https://www.opensocietyfoundations.org/who-we-are/boards/economic-justice-program-advisory-board/member/dawn-fitzpatrick ^
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