Wednesday, July 27, 2011

'Whale' Watching: What Does Soros' Latest Mean?

NEW YORK (TheStreet) -- George Soros announced that he's returning outside capital yesterday. That makes him the third first-generation hedge fund manager to do this this year, joining the ranks of Carl Icahn and -- former Soros protege Stan Druckenmiller.

Don't feel too bad for George though. He'll still be overseeing an estimated $24 billion of his family's money.

Are there any conclusions to draw from this action?

The media and perhaps some smaller investors spend too much time tracking the moves of these "whales." There have probably been no other hedge fund manager moves that the media has spent more time reporting than those of George Soros.

These reports all imply, "If this is what George is doing, well, maybe you should be doing this too, you poor slob."

There are even Web sites that have been set up with names such as "Whale Watching" that report on the holdings of these big hedge fund names as they change quarter to quarter.

The reality is that these "big name" hedge fund managers get it wrong just like the rest of us do. Global Macro printed money as a strategy four years ago but has been a dog's breakfast this year.

The media breathlessly reported over the last couple of months that Soros had "gone to cash." If you mimicked those moves, yesterday's announcement of his returning outside capital now puts that move into perspective.

He isn't necessarily expecting the market to collapse soon. He simply needs an extra billion in cash to redeem his outside investors. Whale watching would have caused you to ape a move that's for a reason very different than you think.

And remember when Icahn returned his $1.76 billion in outside capital to investors last March? The reason cited by Icahn was specifically an imminent market downturn.

"While we are not forecasting renewed market dislocation, this possibility cannot be dismissed," Icahn said at the time in his letter. That's a nice hedge, Carl. If the market tanks, you can say you didn't dismiss the possibility. If it zooms up, you can say you didn't forecast a downturn.

In any case, the Nasdaq is up 3% since Icahn's ominous letter.

The truth is that Soros has been one step removed from the day-to-day activities of his fund management for a while. The 80-year-old essentially has been doing marketing for the fund for some time.

I watched him doing a sit-down with Thomson Reuters global editor Chrystia Freeland a few months ago. Soros does these kinds of events all the time. Davos, New York, London, Shanghai. He could spend all the days of the year traveling around and talking about his macro views on Greece, China, the U.S., and Europe.

To be fair, Soros is good at it. However, at this particular conference during the Q&A, someone rose to ask him about a midmarket U.K. mortgage lender that his fund owned. "Huh?," Soros responded. "I didn't hear it." When the guy repeated the question, Soros waved his hands. "I don't know about that. You'll have to ask the guys that work at my fund."

The media will keep interviewing Soros and other "whales" because it will generate page views, but they should be a little more honest that the "Soros" circa 2011 is not the same "Soros" circa 1992.

What's really behind these moves of returning capital? In all likelihood, these guys don't need the hassle of more reporting requirements to the Securities and Exchange Commission , thanks to new postcrisis rules.

For a guy like Soros, with his family's assets of an estimated $24.5 billion, why keep the extra billion if, by getting rid of the outside capital, you'll avoid more regulatory scrutiny? Same thing for Icahn. Even after getting rid of almost $2 billion from outsiders, it's still believed he has more than $5 billion of his own money that he'll still manage.

The money management game has also certainly changed over their careers. Today, limited partners are more impatient than ever and wanting a steady stream of updates.

If you can manage your own money, without the hassle, why not? Maybe Soros will start trading his billions out of his Ameritrade account in his pajamas and bunny slippers.

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