The credit crunch according to Soros By Chrystia Freeland Published: January 30 2009 11:38 | Last updated: January 30 2009 11:38
On Friday, August 17 2007, 21 of Wall Street's most influential investors met for lunch at George Soros's Southampton estate on the eastern end of Long Island. The first tremors of what would become the global credit crunch had rippled out a week or so earlier, when the French bank BNP Paribas froze withdrawals from three of its funds, and in response, central bankers made a huge injection of liquidity into the money markets in an effort to keep the world's banks lending to one another. Although it was a sultry summer Friday, as the group dined on striped bass, fruit salad and cookies, the tone was serious and rather formal. Soros's guests included Julian Robertson, founder of the Tiger Management hedge fund; Donald Marron, the former chief executive of PaineWebber and now boss of Lightyear Capital; James Chanos, president of Kynikos Associates, a hedge fund that specialised in shorting stocks; and Byron Wien, chief investment strategist at Pequot Capital and the convener of the annual gathering - known to its participants as the Benchmark Lunch. EDITOR'S CHOICE More from Reportage - Nov-24 The discussion focused on a single question: was a recession looming? We all know the answer today, but the consensus that overcast afternoon was different. In a memo written after the lunch, Wien, a longtime friend of Soros's, wrote: "The conclusion was that we were probably in an economic slowdown and a correction in the market, but we were not about to begin a recession or a bear market." Only two men dissented. One of those was Soros, who finished the meal convinced that the global financial crisis he had been predicting - prematurely - for years had finally begun. His conclusion had immediate consequences. Six years earlier, following the departure of Stan Druckenmiller from Quantum Funds, Soros's hedge fund, Soros converted the operation into a "less aggressively managed vehicle" and renamed it an "endowment fund", which farmed most of its money out to external managers. Now Soros realised he had to get back into the game. "I did not want to see my accumulated wealth be severely impaired," he said, during a two-hour conversation this winter in the conference room of his midtown Manhattan offices. "So I came back and set up a macro-account within which I counterbalanced what I thought was the exposure of the firm." Soros complained that his years of less active involvement at Quantum meant he didn't have the kind of "detailed knowledge of particular companies I used to have, so I'm not in a position to pick stocks". Moreover, "even many of the macro instruments that have been recently invented were unfamiliar to me". Even so, Quantum achieved a 32 per cent return in 2007, making the then 77-year-old the second-highest paid hedge fund manager in the world, according to Institutional Investor's Alpha magazine. He ended 2008, a year that saw global destruction of wealth on the most colossal scale since the second world war, with two out of three hedge funds losing money, up almost 10 per cent. See the rest in FT.com. G. Soros is 78 years old. He is another Jew who is from Budapest, like Von Neuman. Minoru Mochizuki --~--~---------~--~----~------------~-------~--~----~ Persons posting messages to not_honyaku assume all responsibility for their messages. The list owner does not review messages prior to posting, and accepts no responsibility for the content of messages posted. -~----------~----~----~----~------~----~------~--~---
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