Column: Soros makes his last bet

A large number of individuals and institutions invest a significant amount of assets in private funds, such as hedge funds, PE and VC funds. However, until the passage of the Dodd-Frank Act last year, advisers managing those assets were subject to little regulatory oversight. With the Dodd-Frank Act, the US legislatures closed this regulatory gap. The SEC now wants hedge funds, PEs and VCs to register and provide information about the funds they manage to SEC. They will have to provide SEC with details of basic organisational and operational information such as size and ownership including general fund data. They also need to provide details of the five gatekeepers?auditors, prime brokers, custodians, administrators and marketers. An exception to this requirement is available if an organisation operates as a family office. Therefore, Soros is converting his hedge fund into a family office and returning external investors? money. On the face of it, these regulations are not draconian and I don?t think too many hedge funds, PE or VC funds would be closing shop or converting into family offices because of the change in regulation. At least, it hasn?t been so in the last one month since the new regulations have been announced.

George Soros seems to have been looking for a reason to close shop and this change of regulation provides a perfect alibi to do so while taking a swipe at his old b?te noire?the SEC. In the last three years, there have been many instances when he has voiced his not-so-optimistic views on the financial markets and one got a sense that he might withdraw from the game, sooner than later. For instance, in February 2009, Soros said the world financial system had effectively disintegrated, adding that there was no prospect of a near-term resolution to the crisis. He stressed that the financial system has been placed on life support, and that there’s no sign that the markets are anywhere near the bottom.

In his last three books he has predicted disaster in financial markets. He did that first with his book The Alchemy of Finance and then in The Crisis of Global Capitalism. In his last book, The New Paradigm for Financial Markets, he cried wolf the third time. And, as in the proverbial story, where the boy cried wolf three times and the wolf really came, he probably thinks that it is best to exit the hedge fund industry when the wolf hasn?t yet arrived.

When I started my career as a trader, I was told that success in trading requires discipline, which means overriding emotions and gut feel. And I was told that there are exceptions like Soros. He depends on his gut and animal instincts to make decisions. His backache is pretty famous in the trading folklore. As ridiculous as it may sound, whenever Soros gets an acute back pain, he knows that there is something wrong with his portfolio. The backache wouldn?t tell him what was wrong like, lower back for short positions, left shoulder for currencies, etc, but he acknowledges that the pain did prompt him to look for something amiss in his portfolio when he might not have done so otherwise. And each time he has acted on the cue, he has profited enormously.

It is possible that his instincts are indicating to him that he return other investors money. He has done this before. In 2000, he made a surprise announcement to scale back his hedge-fund empire, only to make a roaring comeback after a year. However, this time, he doesn?t have age on his side?in about 15 days he will be 81 years old. So, maybe his hedge fund will stay closed for good to outside investments. It has been a long journey for the old man?a classic rags to riches story. He once famously remarked that he was a human being before he became a trader. May be, he thinks it is time for him to become a human being again and devote more time to his philanthropic work. Very few traders are able to make a graceful exit at the appropriate time in real life. Looks like Soros will be an exception here too.

The author, formerly with JPMorgan Chase, is CEO, Quantum Phinance