NEW YORK (CNNfn) - George Soros, the legendary hedge fund manager who was forced into a massive restructuring amid widespread market volatility, said Thursday that his new fund debuting July 1 will focus on more conservative investments.|
In a letter to shareholders, Soros said his new Quantum Endowment Fund will start with assets of up to $6.5 billion, use less risky leverage strategies and have a team of managers to create a "balanced multi-manager hedge fund."
"The objective is to provide the best possible management for the assets of my family and foundations that may also be attractive to other investors with similar objectives, and to put into place a structure that will last beyond my lifetime," Soros wrote. The new fund is replacing Quantum Emerging Growth Fund and Quantum Fund.
Soros in April announced he was overhauling his flagship Quantum Fund -- then the world's largest - and the Quota Fund after heavy losses related to positions in volatile technology stocks and investments in the euro.† A string of high-level manager departures followed.
Soros said at a press conference in London that roughly half the assets of the new fund would invest in macro and arbitrage plays and half in stock-picking strategies on the long and short side.
"This reorganization took place in the full glare of publicity and involved the departure of a large number of employees. Inevitably this gave rise to rumors ... but in fact everything went according to plan," Soros wrote.
He also said redemptions - money that investors withdrew from his control - were about $3 billion following the changes, or about half the estimates of up to $6 billion first cited on Wall Street.
Scott Bessent, who recently left the Soros fold to start his own firm, and Buzz Burlock will manage a portion of the new fund. Darren Davy will head up the macro portion of the fund. The in-house team will oversee the arbitrage strategies.
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Soros, 69, said his son, Robert Soros will begin to take a more active role in the organization.
"In my old age I have become somewhat conservative," Soros said in London. "But we will probably have a more mediocre performance because of the multi-manager structure, because to some extent managers can cancel each other out."
A changing industry
Hedge funds are unregulated pools of money that use riskier strategies like derivatives and short-selling to boost returns. By leveraging their investments, hedge funds can boast substantial returns. However, when the bets go against the fund, the losses can be huge.
In 1998, Long-Term Capital Management, the hedge fund run by former Salomon Inc. Vice Chairman John Meriwether, roiled markets when the fund made a bad bet on interest rates. The Federal Reserve stepped in to negotiate a $3.6 billion bailout plan. The fund ultimately paid back $1.3 billion to investors, but many on Wall Street regarded the fund's near-collapse as a warning sign for high-flying hedge funds.
Unlike most mutual funds, hedge funds require substantial minimum investments of $500,000 to $1 million. The typical shareholders are foundations, pension funds, university endowments and wealthy investors. But even though most individual investors can't get into hedge funds, the funds can have a dramatic effect on Wall Street.
Soros takes on a new approach
Soros said Quantum Endowment Fund will use less leverage and aim for more stable returns of about 15 percent.† The fund, which previously leveraged as much as 100 percent of its equity, will now only leverage about 33 percent.
Soros also voiced support for the broad investing style known as macro investing that many in the industry say has fallen out of favor.
"We are not giving up on macro; we will have a macro team that is looking for those opportunities," he said.
He said the new fund would be more nimble and that it would be tougher for the rest of Wall Street to track his movements.
"In my old age I have become
†somewhat more conservative."
-- George Soros.
"This has one big advantage: We will be less visible in the market. The perception was that I could move markets, and that was to my benefit. The fact is that I can move markets, but it is to my detriment."
Soros said about 60 percent of the assets in the new fund is his own money, with the remaining 40 percent coming from outside investors.
-- staff and wire reports