Soros shows that shooting the messenger is a mistake
A little headline flashed across the screens yesterday which informed us that George Soros has announced his retirement. Apparently he has decided to cease managing other people’s money and will focus on trading his personal account or, as it is known in the trade, his “PA”. Given that the Soros retirement fund isn’t short a bob or two – I understand that his personal wealth is around $24,000,000,000 – he will remain a significant player in the markets.
Soros will always be remembered in this country for having shorted the pound into the crisis which saw it evicted from the EMS in 1992, at which point he acquired the sobriquet of “The Man who Broke the Bank of England”.
The sterling short trade is supposed to have netted him £1bn in profit but, if he is truly worth $24bn, he must have got a lot more right than simply one big currency trade. Big investors, the really smart ones, the Soros’s, the Tudor Jones’s, the Howards and the Gross’s succeed because they have views which superseded the immediate and which enable them to divorce themselves from the daily ambulance chasing which most investment managers seem to find themselves involved in. It must be two years or more since Bill Gross first started to write that he was reducing his exposure to the US Treasury and Soros has been a gold bull for as long as I can remember – I would not be surprised if he was the other side of the trade when the invisible Scotsman-who-abolished-the-boom-and-bust-cycle-and-saved-the-world sold 400 tonnes of the nation’s gold at between US$256/oz and US$296/oz which netted £2.3bn – maybe one sixth of what it is worth now and costing the nation nearly £11bn. Incidentally, both Ed Milliboy and Ed Balls, now Leader of the Opposition and Shadow Chancellor (and chief attack dog) respectively, were key advisers to Lord Voldemort at the time.
Alas, back to Soros. It did not take long after the big sterling trade for commentators to acknowledge that he had done nothing other than to strip the shiny veneer off a rotting piece of furniture. Proper hedge funds have no politics, they don’t care about pretty speeches; they are like Barcelona FC – they expose all and any defensive weaknesses and, having done that, score at will. I must add, though, that they can also get it wrong and if they are pursuing a wrong bet, they get their tails handed to them on a plate – and in size. In 1992 the UK took the medicine, disembarked from the train heading for the single currency and never really tried to jump on it again.
Because they have no agenda – other than trading at a profit – hedge funds should be listened to and observed. Authorities love to fight them because they deliver unedited messages of what they see. They are the Jiminy Cricket of the global economic edifice. As early as January last year – just after the Greek five-year bond auction had gone awry – the guns were out and trained at the hedge funds. Those with a longer memory will recall that it was the Greek Treasury’s decision to cut hedge funds out of the allocation of that particular issue which led to the bond failing and blaming all hedge funds for the abject flop was one of the more flagrant cases of shooting the messenger. The EU and many of its components have always loved to control the story and hedgies are the markets’ equivalent of a free press.
There are calls for regulation. Regulation is supposed to be about investor protection, not issuer protection. There is a very good reason why hedge funds are structured the way they are; otherwise they would be mutual funds. Their objective is to act as vehicles for a knowing collective of individuals. Their very purpose it to be able to move around outside the realm of regulation and to act on instinct and not according to a canon of imposed rules. Investors have the choice. Hurdles to hedge fund investment are significant; Joe SixPack isn’t going to find himself investing there by accident or through ignorance.
George Soros has decided to retire and to trade his PA because he obviously sees regulation spoiling the business he pursued for 30 years and, one could safely conclude, with more than just modest success. Nearly 20 years after his raid on Sterling, there are probably not too many people in this country who, if they knew how, would not thank him for having blown the gaff on British flirtings with currency union. I wonder how we will look back at the hedgies’ role in the Eurozone crisis 20 years from now by which time Mr Soros will be 101 years old and probably still trading.