George Soros, the world's biggest hedge-fund operator who "broke the Bank of England" in 1992, yesterday said his days of betting billions in the global markets were over.
Announcing the surprise departure of his two top fund managers and a $5bn (£3bn) fall in the fund's value in the past month, the Hungarian-born speculator said: "We are bringing an epoch to an end. The days of our large macro bets are over."
Last year Mr Soros's funds bet that the euro would rise and the yen would fall. The opposite happened. Then in October they invested heavily in technology stocks, which were in turn hit by the stock market sell-off this spring.
Mr Soros said he would revamp his flagship Quantum fund as a lower-risk, less speculative fund. He said Quantum had enough liquidity to meet any investor redemptions.
Stanley Druckenmiller, manager of the Quantum fund, is going on a "sabbatical". The assets in his fund dropped in value from $10.36bn at the end of last year to $8.25bn in mid-April. Nicholas Roditi, manager of the $1.2bn Quota fund, has left the firm completely. His fund fell by 31 per cent in value over the same period.
Mr Soros said Quantum would be renamed the Quantum Endowment Fund, and its existing chief executive officer, Duncan Hennes, will be put in charge of risk management.
"We've come to realise that a large hedge fund like the Quantum fund is no longer the best way to manage money," Mr Soros wrote in a letter to shareholders. "Markets have become extremely unstable and historical measures of value at risk no longer apply. Quantum fund is far too big and its activities too closely watched by the market to be able to operate successfully in this environment."
Mr Soros said he needs a more reliable stream of income to fund his charitable activities. To meet these needs, he says, "we shall convert Quantum fund into a lower risk/lower reward operation. We shall engage in a variety of less volatile macro and arbitrage strategies, with a smaller portion of the assets devoted to stock picking on the long and short side."
The departure of Mr Druckenmiller, 46, who led the assault on the pound, was the biggest surprise. There had already been suggestions that Mr Roditi, 54, who had racked up average annual gains of 39 per cent since 1992, might leave.
Mr Soros, 69, said in the letter to shareholders that the firm had already raised enough cash to meet demands by investors who want to pull their money from the fund.
The shakeup at his firm comes a month after Julian Robertson said he would close Tiger Management, until last year the world's second-largest hedge fund group.
Iain Jenkins, editor of EuroHedge, an independent newsletter devoted to hedge funds, commented: "Soros and Robertson were the two figures who built the hedge fund movement. This is the end of the mega funds making macro bets on currencies, countries and so on. The problem is these hedge funds became the market. The whole market could see them moving. They became too illiquid."
Mr Jenkins now expects Mr Soros to concentrate on achieving more modest returns by using arbitrage strategies to trade in and out of equities and convertible bonds.
Mr Soros's clients include some of the richest people in the world, said Mr Jenkins. "Many of them are fantastically wealthy. They invest mostly through Swiss private banks, or through funds of funds operated in Switzerland."
Demand for the Quota fund, for instance, meant that investors had to pay a 30 per cent premium to net asset value for the privilege of buying in. That premium evaporated last year, said Mr Jenkins.Reuse content