Soros Fund Management, headed by hedge fund star George Soros, will stop managing funds for outside investors and become a family office, a letter to shareholders reveals.

This means that Soros, who made himself a name in the UK in 1992 when he made a profit of £1 billion (about $1.6 billion) when the Bank of England was forced out of the ERM and devalued the pound, ends his four-decade-long career as a hedge fund manager.

In connection to the development, the firm’s chief investment officer, Keith Anderson, is departing to seek other opportunities. Anderson joined in 2008 after 20 years at BlackRock, which he co-founded in 1988.

“The announcement that George Soros will no longer manage outside investors’ money may well be partly as a consequence of the current volume of regulatory change.  The Soros firm would had to have registered with the SEC (by March 2012) along with hundreds of other asset managers, including firms outside the US and here in the UK.  However, as the Soros firm currently comes close to qualifying for the “family office exemption” it only has to return the $1 billion of “external money” in order to qualify,” said Peter Moore, head of regulation and compliance at the IMS Group, a consultancy.

“Few other hedge fund managers are likely to follow suit given the unique characteristics (that the vast majority of the funds under management is family money) of this firm,” he argued.

“In contrast, Warren Buffet’s Berkshire Hathaway’s investment vehicle manages the funds of his investor shareholders.  Also, the timing of the change at Soros appears to coincide with other changes within the firm, such as the retirement of the chief investment officer. The firm will continue managing a large amount of money (reported at around $24.5 billion) and will remain one of the largest and influential investors in the world.”

The letter

The letter, signed by Soros's sons and co-deputy chairmen of the New York-based firm, Jonathan and Robert Soros, says the reason behind the move is new regulations that require private investment advisors to register with the US Securities and Exchange Commission by March 2012. “An unfortunate consequence of these new circumstances is that we will no longer be able to manage assets for anyone other than a family client as defined under the regulations,” the letter says.

“We have relied until now on other exemptions from registration which allowed outside shareholders whose interests aligned with those of the family investors to remain invested in Quantum,” the letter says, referring to the Quantum Endowment Fund.

The letter underlines that Soros Fund Management has effectively operated as a family office since 2000, when it held outside money amounting to $4 billion. The firm will now return less than $1 billion to investors before the SEC deadline at latest.  

The company says that 80-year-old George Soros, who controls about $24.5 billion for himself, his family and his foundations, will stay on as chairman.

Soros became a trader on Wall Street in the 1950s. He set up the predecessor to the Quantum fund in 1969 and started his own firm in 1973. Besides his contribution to finance, he drives a philanthropic foundation since 1979, the Open Society Fund, which promotes democracy and market economy across the globe.

Editor's comment: It is ironic, in a way, that Soros has chosen to make this move because of regulatory requirements. The legendary investor has had a second career as a commentator on global affairs, drawing attention to what he regards as the faults as well as the benefits of laissez faire capitalism and by implication, has argued that the world of banking and finance needs to be reined in by tougher rules.