What's Really Driving George Soros to Bail on Investors

Last Updated Jul 26, 2011 5:39 PM EDT

George Soros has famously impeccable timing. Which is why it's hard to believe there isn't more to the legendary hedge fund manager's decision to stop taking money from outside investors than meets the eye.

In a letter, Soros's firm attributes its decision to new government regulations set to kick in next year that will force funds that don't operate as a "family office" to register with the SEC. That stands to reason, since hedgies hate revealing anything about their trading strategies. Staying under the regulatory radar allows Soros to stay in the game without having to keep the feds informed on what he's doing. Indeed, it's not like Soros is calling it quits. The $1 billion he's returning to clients in his Quantum fund represents less than 4 percent of its $25 billion in assets.

So here's another hypothesis: Soros is trimming his sails because the markets aren't as easy to navigate as when he was beating up on the pound sterling in the early 1990s or the Thai bhat during the Asian financial crisis later that decade. The perpetual chase for big returns on behalf for outside investors is today a far riskier proposition. As the investor himself recently said:
"I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis," Soros, 80, said in April at a conference at Bretton Woods organized by his Institute for New Economic Thinking. "The markets are inherently unstable. There is no immediate collapse, nor no immediate solution."
Soros issued a similar warning in 2010, asserting that "we are facing a yet larger bubble" and urging policy makers to take action. That echoes the thinking of another hedge fund titan, Carl Icahn, who cited his concerns about "another possible market crisis" in returning money to investors earlier this year. Other hedge funds have also been moving their investments into cash in recent months in response to the volatility buffeting global financial markets.

At this stage of his career, Soros has more to lose than to win trying to outwit the markets. He's already a billionaire, with a superb record of making money for investors. Another score would only burnish his legacy; a run of major losses, by contrast, would tarnish it. Why keep your head on the chopping block, especially in view of the unpredictable economic and political forces roiling the market?

If "there is no immediate collapse, nor no immediate solution" to our financial problems, then now is a good time for Soros to begin exiting the field.

Thumbnail from World Economic Forum via Wikimedia Commons
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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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