George Soros picks up $5.5bn as Quantum Endowment fund soars

February 9, 2014 10:00 pm

George Soros picks up $5.5bn as Quantum Endowment fund soars

By James Mackintosh

George Soros’s Quantum Endowment fund had its second-best year ever in dollar terms in 2013, adding $5.5bn to the billionaire’s fortune and putting Quantum back in top place among the most successful hedge funds of all time.

The gains mark a return to stability for Quantum, which Mr Soros closed to non-family members at the end of 2011 to avoid regulatory scrutiny under the Dodd-Frank financial reforms. He handed day-to-day trading to Scott Bessent, chief investment officer, after a decade of rapid turnover at the top of the fund.

The $5.5bn return was the best for the $28.6bn fund since 2009, when Mr Soros oversaw a return of 29 per cent by correctly calling the end of the global financialcrisis. He has frequently made higher percentage returns, including 32 per cent when he came out of retirement in 2007, but his then-smaller asset base meant lower dollar profits.

Last year’s return means Mr Soros has displaced Ray Dalio’s Bridgewater Pure Alpha as the fund that has made the most money for investors. It has generated almost $40bn since it was founded in 1973, according to Rick Sopher, chairman of LCH Investments, who compiled the rankings.

Mr Soros is best known for triggering the collapse of the pound on Black Wednesday 1992, when Quantum made $1bn. Last year’s profits did not come from such an aggressive strategy, with the 22 per cent return spread across the different strategies of the fund.

Four other funds made $4bn or more last year, all correctly calling the strong run in equities, which resulted in the US stock market returning 32 per cent. They were Lone Pine and Viking, the most successful “Tiger cub” protégés of Tiger Management’s Julian Robertson; David Tepper’s Appaloosa; and Baupost, founded by the Boston-based deep-value investor Seth Klarman.

Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds.

“They did far better than the hedge fund indexes,” said Mr Sopher, who is also chief executive of Edmond de Rothschild Capital Holdings. “These funds are still in the mode of being get-rich vehicles rather than stay-rich vehicles. They carry on seizing whatever opportunities there are but still exhibit really good risk control.”

“Too many managers now focus on risk control at the expense of returns.”

Andrew Law, who runs the 13th-ranked, $7bn fund Caxton, said the key to success was to give money back to avoid growing too big.

“With one very obvious exception [Quantum], history has not been kind to macro funds that have grown much in excess of $10bn-$12bn, in terms of subsequent return,” he said. Macro funds such as Caxton and Quantum can make freewheeling bets across currencies, interest rates and shares.

While the top 20 managers mainly performed well, hedge funds as a whole have proved less lucrative in recent years than they were before the crisis. Since the start of 2008 the HFRI Composite index of hedge funds has risen 20 per cent, half the return from US equities and US 10-year Treasury bonds. Last year the HFRI was up 9 per cent, its best year since 2010.

Mr Law said long-only managers, who have benefited from rising shares, may face headwinds as a 30-year decline in real interest rates comes to an end.

“The challenge will be to trade tactically,” he said. “The discounting of financial repression over the past few years has merely brought forward future returns and left a rather less enticing landscape to long-only managers.”

Mr Sopher’s ranking excludes large computer-run funds such as Renaissance Technologies and those with no single manager, such as DE Shaw.