News Analysis: Soros' retirement

Date: Tuesday, August 2, 2011
Author: Martin Leonard, COO Connect

The decision of George Soros, the legendary hedge fund titan, to retire from managing outside investors’ money has sparked debate about the future of the alternative investment industry.

Soros, who made $1 billion shorting the British Pound, announced last week that Soros Fund Management was to become a family office ostensibly to avoid the onerous registration and regulatory requirements being put forward by the Securities and Exchange Commission (SEC).

Several of his contemporaries and indeed one-time colleagues have also returned capital to investors and set up shop as family offices – most notably, Stanley Druckenmiller. “It is a shame that such a legend like Soros is not going to be managing money anymore for investors,” said Holland West, partner at international law firm Dechert.

Registering with the SEC is not cheap but cost should not an issue for Soros – he manages $25.5 billion after all, of which $1 billion stems from outside investors. “The costs are not an issue for Soros,” said Rosemary Fanelli, chief executive officer at consultancy firm Counsel Works in New York.

“He doesn’t manage that much money for outside investors so I suspect he just did not want the added headache. The registration costs would have been insignificant. The investor capital is a small percentage of the overall total but I suspect he just didn’t want the hassle,” she added.

West agreed that cost could not have been a factor in Soros’ decision to establish a family office, although he added “whether or not Soros will fit into the family office exemption is a question of fact.” Most participants believe he is retiring to focus more on his multiple philanthropic pursuits.

However, unlike Soros, most fund managers do not have the luxury or resources to return investor capital in the face of regulation creep. “The bigger concern is what happens to the medium sized firms. The cost of registering is not high but the ongoing compliance and reporting requirements are steep. Fund managers need to hire chief compliance officers and these added costs could be a significant performance drag,” stressed Fanelli.

Fanelli has also speculated there might be a Soros effect or surge in family offices – particularly among managers who are at the top of their game. “Some managers just don’t want the extra work to contend with,” she said.