Vlad Demochko
George Soros, the famous financier and one of the world’s best investors, announced his decision to close his hedge fund on the eve of his 81st birthday. After 40 years of work in the industry the billionaire wants Soros Fund Management to focus exclusively on managing his family’s capital.
According to the US-Canadian Association of Traders and Investors under , the news cannot be called a sensation. The experts, who got used to Soros’s originality, expected him to do something like this, especially as he had expressed his desire to retire. However, few people believe that the most successful investor of the 20th century will really retire to give charity and interviews. The closure of his hedge fund is another wise step taken by the successful businessman – any of his actions is always a part of some complicated big-scale game.
The closing procedure: why does Soros withdraw from business?
Now George Soros wants to focus on his family’s capital:
1. The capital of Soros Fund Management LLC is equal to $25,5B.
2. Private investors’ share is about 4%. All the private investors received letters informing them that within the next 6 months they will get their investments back (the total amount is about $1B).
3. Soros’s hedge fund. His company is planned to turn into a classic family business.
4. 3rd-party info. According to some sources, Mr. Keith T. Anderson, who has been the Chief Investment Officer at Soros Fund Management LLC since Feb 2008, is going to leave his post.
The official reason for closing the fund:
It was given in the official letter to investors. According to the Guardian, Soros’s sons explained that the decision to close the fund was made “because of new financial regulations that would have made it necessary to register with the Securities and Exchange Commission, the US financial watchdog, by March 2012 if the firm had continued to manage money for outsiders”.
· In other words, new regulations would force Soros Fund Management LLC to register with the U.S. Securities and Exchange Commission (SEC) by March 2012 if the fund continued to manage money for outsiders.
· Under the new regulations, any hedge fund that has over $150 million under management must provide the SEC with detailed info about its investors and the assets it manages.
Other possible reasons:
Soros is not the only big-scale investor affected by the Dodd Frank Act and actually deprived of the possibility to manage outside investors’ funds:
1. LCH Investments. According to LCH Investments, the world’s 10 biggest hedge funds managed to earn their clients around $182B.
2. Profitability leaders. Soros’s hedge fund was the frontrunner in terms of profitability – almost $35B in investor’s profits. Since 1969 Soros Fund Management LLC earned 20% a year on average.
3. The USA’s 10 leading hedge funds brought their investors $28B of net income in Q2 2010, even outpacing the US banking sector: for comparison sake, over the same period the whorld’s 6 leading banks (Goldman Sachs, JPMorgan, Citigroup, Morgan Stanley, Barclays and HSBC) earned their clients only $26B.
4. Unprofitable strategies. In the first half of 2011 despite the rally seen in the stock market numerous hedge funds weren't making out as well as before. The media reported that global investors started getting rid of their assets in favor of cash. For example, the Quantum Endowment Fund (that used to manage Soros Fund Management LLC) preferred to exchange 75% of its assets for cash.
5. Soros’s losses. It is reported that in the first half of 2011 Soros Fund Management LLC lost 6% of its capital. After that Keith Anderson ordered all the portfolio managers to suspend trading.
6. Moore Capital Management. Carl Icahn’s Moore Capital Management was another major US hedge fund (around $15B in assets) that suffered losses and was closed in March 2011.
7. The main reason. Most experts share the opinion that the main reason for the latest changes connected with hedge funds is economic and financial instability seen around the world over a couple of months. Big-scale investors are concerned about the situation around the eurozone’s debt crisis, the US debt ceiling problem, China’s unsuccessful struggle with inflation and many other problems.
USD perspectives in advance of possible US default:
According to the Department of Mid-term Trading, , the USD index is still under pressure:
If the US federal debt limit is eventually raised until August 2nd, the US Dollar well may show a short-term rally.
Movement layouts. Monthly-Daily-H1. USD index. July 26th 2011.
1. Upward scenario (CP1)
Support level: 1.5634 is critical for this variant of movement. A breakout of it cancels the scenario.
Resistance levels:
Volatility indicator “Saks Channel” - Н1: 1,5689 - 1,5755 - 1,5821.
Local high: 1,5765. BUY target grid of the basic indicator: no grid
2. Flat scenario (Flat-zone):
Support level: 1,5956.
Resistance level: 1,5791.
For the flattish movement scenario these levels are critical. If there is flat widening, the levels may see false breakouts. However, the deviation mustn’t exceed 161.8% - 1,5415. Therefore, in this case the price mustn’t come out of the buy-zone or sell-zone. The 161.8% support level inside the buy-zone and the 161.8% resistance level inside the sell-zone are critical for this scenario and cancel it once violated.
3. Downward scenario (CP1)
Resistance level: 1,5956 is critical for this variant of movement. A breakout of it cancels the scenario.
Support levels:
Volatility indicator “Saks Channel” - Н1: 1,5623 - 1,5394(D1)
Local low: 1,5415. SELL target grid of the basic indicator: 1.5622 - 1.5415.
The analytics and wave layouts are provided by the Department of Mid-term Trading, .
Market Leader and would be very grateful to you for participating in a survey. Please, visit the Academy’s forum and answer the question given below:
Will other big-scale hedge funds be closed in the near future?
· Yes, they will because of changes in the US legislation
· Yes, they will because of the treat of a US default
· No, they won’t. They will just turn into “family funds”
· Your own opinion
Vlad Demochko
