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.

Top ten hedge fund managers
Name  Fund Aum ($bn) Net gains since inception ($bn)
George Soros Quantum Endowment Fund 28.6 39.6
Ray Dalio Bridgewater Pure Alpha 79 39.2
John Paulson Paulson & Co 20.3 25.4
Seth Klarman Baupost 26.4 21.5
David Tepper Appaloosa 19.3 21.2
Steve Mandel Lone Pine 27.6 20.5
Tom Steyer (founder, formally handed over to a successor) Farallon 20 17.4
Alan Howard Brevan Howard Fund 28 17
Andreas Halvorsen Viking 27.3 16.8
Louis Moore Bacon Moore Capital 14.9 16.5
Source: LCH Investments

“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.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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