New York Times, April 29, 2000
Huge Losses Move Soros to Revamp Empire
By DANNY HAKIM
After absorbing huge losses in recent weeks, the financier George Soros
said yesterday that he was reorganizing his investment empire and would
abandon many of the high-risk investment techniques that made him a
billionaire many times over and rewarded his wealthy investors handsomely.
He also warned investors who stick with him to expect lower returns.
With bets that went sour on technology stocks and on Europe's new currency,
the five funds run by Soros Fund Management have suffered a 20 percent
decline this year and, at $14.4 billion, are down roughly a third from a
peak of $22 billion in August 1998.
In a letter sent yesterday to shareholders and at a news conference, Mr.
Soros said that his two top money managers would leave their posts shortly.
Stanley F. Druckenmiller, the manager of Mr. Soros's flagship $8.2 billion
Quantum Fund since 1989, will retire, as will S. Nicholas Roditi, manager
of the $1.3 billion Quota Fund. Mr. Soros, who is 69, also said he would
reorganize Quantum into a group of smaller funds and change his investment
style to eliminate some of the risk and reduce the potential for reward.
"Maybe I don't understand the market," Mr. Soros said at the news
conference. "Maybe the music has stopped but people are still dancing."
For his own part, he said: "I am anxious to reduce my market exposure and
be more conservative. We will accept lower returns because we will cut the
risk profile."
The moves were further signs of the turmoil affecting financial markets and
the inability of once-storied money managers to prosper amid the
volatility. At the end of March, Julian H. Robertson Jr., 67, chairman of
the Tiger Management investment company, railed that "we are in a market
where reason does not prevail" and announced that he was dismantling his
fund group after eschewing technology stocks and sustaining significant
losses.
Unlike Mr. Robertson, Mr. Druckenmiller, 46, made an aggressive move into
technology stocks in mid-1999 after facing a decline of about 20 percent
early last year. But in the sharp slide of the technology-heavy Nasdaq
composite index this month, Mr. Druckenmiller still had many of those bets
in place.
"I screwed up; I overplayed my hand," said Mr. Druckenmiller, whose Quantum
Fund has fallen 22 percent this year, through Wednesday. "I should have
sold in February."
In addition to the damage from technology bets, which included Microsoft,
Sun Microsystems and Qualcomm among others, the Quantum Fund was wounded by
currency bets, Mr. Druckenmiller said. The bets, according to one expert,
essentially took the view that the euro would perform well against the
dollar, an assumption that proved wrong. Mr. Druckenmiller said he had been
jettisoning his positions over the last three to four weeks, and one top
money manager, Lawrence A. Bowman, who runs the $5 billion Bowman Capital
Management, said that such selling of Quantum's technology positions
contributed to the recent slide of technology stocks.
"You can't sell a couple billion dollars' worth of tech stocks without
impacting the market," Mr. Bowman said. "We've heard that they have
liquidated 80 percent of their positions."
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Yesterday, Mr. Soros was questioning whether the vicissitudes of the modern
market were transforming the hedge fund industry in ways that made it less
practical to run a so-called macro fund, which is free to use a wide
variety of financial instruments in any area of the world.
"A large hedge fund like Quantum Fund is no longer the best way to manage
money," Mr. Soros wrote in his letter to shareholders. "Quantum is far too
big and its activities too closely watched by the market to be able to
operate successfully."
Still, do not expect Mr. Soros's Quantum Endowment to be a so-called
widows-and-orphans fund that caters to risk-averse investors. One reporter
at the news conference asked if the tamer Quantum Endowment would function
more like an annuity, a low-risk investment sold by the insurance industry.
The idea elicited a laugh from the otherwise sober Mr. Druckenmiller.
"For God's sake," he said, pointing to his boss. "This is George Soros."
Louis Proyect
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