George Soros Is Back in the Game

The hedge-fund vet is again running his Quantum funds

When immense losses pummeled George Soros' Quantum Fund in April, 2000, it was, it seemed, the end of an era. Although Soros did not shutter his money-management empire, as fellow hedge-fund magnate Julian H. Robertson Jr. had done the month before, Soros reorganized his funds and even farmed out Quantum's portfolios to outside managers. Clearly, the superinvestor/philanthropist/amateur philosopher was not going to remain a force to be reckoned with in the world markets. "I no longer want to set any records," he said at a news conference.

Well, George Soros is back. And by all accounts, he seems well on his way to recouping some of his lost prestige as a world-class investor--even while grappling with a French prosecution for insider trading. The word from people familiar with Soros Fund Management LLC--whose execs, including Soros, declined to be interviewed for this article--is that the 72-year-old, Hungarian-born financier has returned to the helm. While still devoting much of his energy to far-flung philanthropic endeavors, Soros is again running his flagship $7 billion Quantum Endowment Fund and myriad other investment vehicles. Says one veteran Soros-watcher: "He gave a line for a while that he was 70 and didn't want to gamble anymore. But none of that's true, and he's trying hard as ever to make money."

The results are impressive. Quantum gained 13.8%, vs. a 13% decline in the Standard & Poor's 500-stock index, in 2001, when the fund was largely under outside management. In 2002, with the fund back under internal management, it's down just half a percent through Dec. 6, beating the S&P by a staggering 21 percentage points. What makes the Quantum results even more impressive is what Soros didn't do to get them. He's no longer making the controversial, huge, highly leveraged currency bets--such as his widely publicized wager against the pound in 1992--that reaped immense gains for him in the 1990s.

People familiar with his operation say that Soros has become a major player in emerging markets such as Eastern Europe. They say he has also quietly beefed up his real estate investments, via a $4.5 billion investment partnership. He still makes currency bets, a former Soros exec says, but they are nowhere near as large or as risky as in the past. In the U.S., though Soros has occasionally taken large equity stakes, SFM's holdings as of Sept. 30 included just one major equity position--his previously announced 15% stake in JetBlue Airways (JBLU ). "The days of the gunslinging hedge funds are largely gone," says Barry H. Colvin, chief operating officer of Tremont Advisers Inc., a hedge-fund consulting firm.

The new, slimmed-down Soros approach is very much the product of the downsized, more modest, post-bull-market environment. For Soros, it all began in April, 2000, when Quantum lost 20% as a result of a disastrous, ill-timed bet on high-tech stocks. The spring massacre led to the departure of his deputy, Stanley Druckenmiller, who had operated the fund on a day-to-day basis. Quantum ended 2000 down 15%.

Soros began to reverse course and pull back money from outside managers early in 2002, say people familiar with his organization. In January, 2002, he hired as chief investment officer Robert Bishop, a principal of the Maverick Capital Ltd. hedge-fund group and manager of a $2 billion global portfolio. More recently, he announced that the chairman of Goldman, Sachs & Co. (Asia), Mark Schwartz, would join SFM as CEO on Jan. 1.

The top-level shuffle is emblematic of Soros' revised investment strategy. Bishop's Maverick was noted for realizing sizable returns without substantial leverage, and Schwartz's Asian experience will give a boost to SFM's efforts in overseas markets. Soros has already been making forays back into global equities, such as his participation in a consortium that took private the Irish telecommunications monopoly Eircom Ltd. (EIR ) More recently, he briefly took a 2 million-share stake in UAL Corp. (UAL ), which he cashed out as bankruptcy loomed.

Only one cloud could dim this generally upbeat picture. On Dec. 20, a magistrate in Paris will render a verdict on an insider trading case brought against Soros and two other businessmen. Soros stands accused of trading on insider knowledge of financier Georges Pebereau's plans to attempt a takeover of Société Générale in 1988. Soros, who is vigorously fighting the charges, made about $2 million by buying shares in the bank in September, 1988, and reselling them two months later. At the trial in November, Soros contended that he was paying a courtesy call when Pebereau told him about the plan to buy the shares, and that the pending takeover was very widely known.

The consensus in the French legal community is that the case is a slam dunk from Soros' perspective. His attorneys argue the prosecution is improper because France's insider trading laws came into effect at the end of 1989. François Lenglart, a law professor at HEC School of Management in Paris, agrees that Soros stands a good chance of acquittal. Prosecutors are seeking a $2 million fine.

Soros doesn't exactly face the Bastille. He could pay that fine from the loose change in his sock drawer. And French insider trading convictions just don't carry the kind of consequences--such as being kicked off Wall Street--that they do in the U.S. Nope, it will take more than an overzealous Gallic prosecutor to rain on George Soros' parade.

By Gary Weiss in New York, with Christina W. Passariello in Paris

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