Commodity Investor Spotlight: George Soros
Stephen Simpson: It is impossible to write the history of hedge funds or American investors without including George Soros. Though Soros did not invent the hedge fund, he was among a very select group to show how a well-run fund employing significant leverage could generate outsized returns for prolonged periods of time. Due to a particular combination of success, aggression and willingness to speak to the press, Soros found his name tied to two major financial events of the 1990s and he became for many the epitome of a hedge fund manager.
According to the most recent Forbes numbers, Soros is the 15th-richest person in the world, with a $19 billion net worth.
Soros grew up in Hungary, surviving both the Nazi occupation of Hungary and the intense fighting in Budapest between Soviet and Nazi forces near the end of World War II. Soros emigrated to England in 1947 and attended the London School of Economics, graduating in 1952.
Soros emigrated again, to New York City, in 1956, and began his career on Wall Street. Soros’ first opportunity to run money would come in 1967 with First Eagle Funds. He left to establish Soros Fund Management in 1969, launching the Quantum Fund later in 1973 with Jim Rogers, another now-noted commodity investor.
Soros spent over 40 years managing funds at Soros Fund Management, racking up an incredible average annual return of 20%, while the Quantum Fund itself boasted returns in excess of 30%.
For better or worse, though, most of Soros’ investments garnered relatively little individual notice. Soros was an omnivorous investment opportunist, willing to invest in stocks, bonds, commodities, currencies and virtually any other financial instruments that seemed mispriced according to the firm’s models. Soros made extensive use of leverage and was willing to invest with both very short and longer time horizons.
Soros is arguably most known for the huge bets he made against the British pound in 1992. Soros felt that the European Exchange Rate Mechanism overvalued the pound and that the system was inherently unsustainable. Betting $10 billion on this view, Soros reaped more than $2 billion in profits from his trades, with reportedly $1 billion coming on a single day [see also The Ten Commandments of Commodity Investing].
The Bank of England capitulated on September 16, 1992 (now known as “Black Wednesday”), and Soros henceforth carried the nickname of “the man who broke the Bank of England.” It was later revealed that the Bank of England lost about 3.3 billion pounds defending the pound, and while there were other investors besides Soros involved, the event was a visible sign that international financial markets now carried more ultimate power than individual governments.
Soros’s name would again appear prominently during the Asian financial crisis during the summer of 1997. A full retelling of the crisis is beyond the scope of this article, but Soros was publicly named by Malaysian Prime Minister Mahatir Mohamad as a prime cause of the crisis, and Mahatir further alleged that he was attempting to ruin the economies of Southeast Asia through currency speculation. According to Soros, his firm and funds were involved during the crisis, going both long and short Southeast Asian currencies like the Thai baht and Malay ringgit at various points.
Jim Rogers left Soros Fund Management in 1980 and Soros began to hand over more day-to-day responsibility throughout the ‘80s and ‘90s before officially retiring in 2011.
With all due respect to Mr. Soros, at age 82 there are probably not too many chapters left to his story. Soros officially retired in 2011, returning about $1 billion to investors. Soros currently devotes his time to his charitable and foundation endeavors, as well as writing projects and speaking engagements.
Soros has been married and divorced twice, with five kids between the two marriages, and is presently again engaged to be married.
While Soros earned his professional fame as a bold trader willing to make huge bets on binary outcomes, Soros has increasingly received notice for his extensive charitable efforts. Forbes estimates that he has donated more than $8 billion since 1979, with substantial sums going towards fighting poverty and supporting democracy and human rights around the world. So successful were some of these pro-democracy efforts in places like the former Soviet republics that Soros’s actions reportedly compromised U.S. foreign policy [see also How To Lose Money Investing In Commodities].
Soros has also incurred the wrath of conservatives in the United States for his vocal support of the Democratic Party, and Soros can claim the questionable honor of having an entire Wikipedia page dedicated to various conspiracy theories tied to him.
The Bottom Line
Though Soros has officially retired from the professional investing world, he still has a lot of projects that keep him busy. Outside of his philanthropic work, Soros has also taken a financial interest in professional sports, and in the last 10 years he’s been involved in everything from the Washington Capitals baseball team to the English football club Manchester United. Regardless of Soros’s professional involvement in the investing world, as an outspoken financial critic–with a successful and prolific career to back up his theories–Soros’s public pronouncements can give insight into the markets and investors should pay attention.
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