NEW YORK (CNNfn) - Hedge funds managed by George Soros could be hit with up to $3 billion in redemptions following heavy losses in his flagship Quantum Fund and the resignations of two top managers, industry watchers said Thursday.|
Soros, who spoke about the market at a conference in London on Thursday, has liquidated some holdings into cash to prepare for the expected exodus of investors, and industry experts have been speculating about the blow.
"Our expectation is that there would be significant redemptions from the fund -- about $3 billion over the next three to six months," said Barry Colvin, director of research at Tremont Advisors in Rye, N.Y.
Soros last week announced a major restructuring of his funds following steep losses in technology stocks and the departure of veteran managers Stanley Druckenmiller and Nicholas Roditi.
Assets in the fund had dropped by about $5 billion and Quantum Fund was off more than 20 percent in the first quarter. Soros said he would restructure Quantum Fund and take on much less risky strategies.
According to press reports, Soros apparently confirmed an expected $3 billion in redemptions.
While some hedge funds allow redemptions only at certain times, Colvin said Soros may waive any restrictions and allow shareholders to get out sooner.
At the same time, many of the investors are pension funds, endowments, and other big institutions that meet only periodically to make decision, Colvin said.
Some hedge funds prevail amid turmoil.
"I think hedge fund managers have positioned themselves conservatively," Colvin said. "We're near the bottom now. Almost all of them are conservatively positioned."
Indeed, some traders are already seeing the effects of Soros's liquidations, said Jim Gillies, vice president and chief information officer at HedgeFund.net, which tracks 1400 hedge funds.
"If there are more than $3 billion in redemptions, he'll have to go sell more securities," Gillies said.
Calling it a bear
Meanwhile, Soros warned on Thursday that the recent erosion in U.S. share values suggests that the United States is already in the grip of a bear market.
"We probably are in a bear market, only we don't know it yet," he told a group of journalists at the Association of American Correspondents in London. "I think one has to position oneself accordingly."
However, Soros offered hope that canny investors could still profit in spite of the overall slippage in share values.
"In any bear market, you have pockets that go against the market. I've made quite a bit of money ... in bear markets, in special areas," he said.
Soros suggested that the U.S. economy could be at risk because many brokers and traders are not old enough to remember the last severe financial downturn and prolonged recession.
He expressed mild surprise that so many investors and market professionals remained optimistic in spite of the volatility and decline in many U.S. stocks.
"The market today is dominated by much younger people who have not experienced a bear market," Soros said.
He noted that retail investors, whom he described as "the little guys," were continuing to buy shares, particularly through mutual funds and in high-tech companies.
Check your mutual funds.
Soros is not the only major investor to take a dim view of the recent frenzied demand for shares in technology companies. Billionaire investor Warren Buffett said last month he would continue to shun technology stocks even though they showed some of the biggest gains of any sector last year.
Another hedge fund manager, Julian Robertson, recently announced plans to liquidate his fleet of value-oriented funds amid losses in an "irrational" market.
Speaking up about the euro
Soros, who has amassed a fortune speculating on currency fluctuations, also criticized the European Central Bank for not intervening in currency markets to buttress the sagging euro, which plunged to a new low against the dollar in early trading in Europe.
The common currency used by 11 European countries has retreated steadily from a peak of $1.1886 reached during its first day of trading on Jan. 4, 1999. It fell to a record-low 88.45 cents in early trading Thursday before rebounding above 89 cents.
"I sense a great reluctance on the part of the (ECB) authorities to mess with the markets," he said. "Their intervention would be extremely credible since we are clearly in overshoot territory, and there is reason for it to continue. But you could short-circuit it by intervention."
Soros blamed some of the euro's weakness on what he described as inefficiency and selfish nationalism among the politicians who run the European Union. He argued, for example, that EU members dole out aid to Balkan countries to help themselves more than to help the aid recipients.
Still, Soros took care to emphasize that the euro's decline does not constitute a crisis -- so far -- for the countries that use it.
Change in guard
In other related news, Soros is losing another top gun. Chief Financial Officer Peter Streinger resigned to join Westport, Conn.-based Pequot Capital Management as CFO. Streinger gave notice about six weeks ago, a Soros spokesman said Tuesday.
"This is unrelated to last week's events," the spokesman said, referring to Soros' announcement he would revamp his flagship Quantum Fund and the resignations of Druckenmiller and Roditi.
Streinger will be replaced by Sean Cullinan, who has worked at Soros since last year.
-- from staff and wire reports.