Legendary hedge fund boss George Soros may have transformed his firm into a family office business in the face of tough new US regulations but he is unlikely to trigger a large number of imitators, figures in the industry say.

The bulk of Soros Fund Management, a privately held hedge fund business, is composed of family money, with only a fraction held for outside clients, so his shift, as announced this week, does not represent a dramatic change of direction, people said. The reason behind the move is new regulations that require private investment advisors to register with the US Securities and Exchange Commission by March 2012, the firm has said.

The move may appear ironic since Soros, as both a renowned investor and supporter of political and philanthropic causes, has also been a critic of global capitalism in recent years.

“We do not believe this [move] will have a broader impact,” Jérôme de Lavenère Lussan, of Laven Partners, consultants to the alternative investment management sector, told this publication.

“The context for Soros - who is 80 years old - and whose outside assets are only one out of 25, is unique. The press coverage on his reference to SEC registration will be bad press but in reality the US needs this as its liberal approach to date has left investors suffering the worst of the fund management industry to date,” he said.

The circumstances of Soros’s own business do not suggest wholesale changes are coming from across the sector, figures said.

"Soros's fund management business is largely unique in that it is a large asset manager but a very large proportion of the money is Soros family money," Peter Moore, head of regulation and compliance at IMS Group, a consultancy, told WealthBriefing.

There is a relatively "small sliver" of external, third-party money currently run by Soros, said Moore.

"This is little more than the firm saying that the burden of regulation triggered by the external money is disproportional in the context of the firm as a whole and its current function, hence their availing of the opportunity to use the family office exemption,” he said.

As he explained in a separate note on the issue: “The Soros firm would had to have registered with the SEC (by March 2012) along with hundreds of other asset managers, including firms outside the US and here in the UK.  However, as the Soros firm currently comes close to qualifying for the “family office exemption” it only has to return the $1 billion of 'external money' in order to qualify.” 

“In contrast, Warren Buffet’s Berkshire Hathaway’s investment vehicle manages the funds of his investor shareholders.  Also, the timing of the change at Soros appears to coincide with other changes within the firm, such as the retirement of the chief investment officer. The firm will continue managing a large amount of money (reported at around $24.5 billion) and will remain one of the largest and influential investors in the world,” he said.

However, a note of dissent emerged when a sentiment survey of 40 hedge fund managers released from Infovest21, a research firm, showed that 56 per cent of managers said they
expect more hedge funds to start returning clients' money in order to
run family offices, according to InvestmentNews.

Repayments

Soros Fund Management has reportedly paid $35 billion to investors since the firm was founded in 1973. The firm is now run by Soros’s two sons, Robert and Jonathan. According to the Financial Times, Soros has run the business conservatively, protecting rather than looking to expand his wealth, with a heavy cash exposure. Soros cut annual targeted returns to 15 per cent from 30 per cent and some of his top managers, such as Stan Druckenmiller, left.

The Hungarian-born Soros has had a second career as a philanthropist and supporter of political causes, sometimes arousing the ire of the US right-wing through his spending in 2004 to unseat then-President George W Bush, or his backing of the Center for American Progress, a left-of-centre organisation that is thought to be close to the current Obama administration. Soros is known to controversy, having drawn attention to what he perceives as rising anti-Jewish prejudice in Europe, for example.

Soros probably first grabbed the international limelight when he became famed as “the man who broke the Bank of England”, a term arising from how he shorted sterling against the deutschemark in 1992, thereby helping to throw the UK currency out of the European Exchange Rate Mechanism. This feat arguably benefited the UK economy but struck a mortal blow against the credibility of the-then Conservative government, led by John Major.