Soros Revamps Quantum as Druckenmiller, Roditi Resign (Update5)
By Katherine Burton
New York, April 28 (Bloomberg) -- Stanley Druckenmiller and
Nicholas Roditi, the top managers for George Soros's $14.2 billion
investment firm, are leaving after assets at the world's biggest
hedge fund dropped by about $5 billion this month.
Soros said he would revamp his flagship Quantum Fund to make
it less risky by cutting back on its long and short stock bets.
Chief Executive Officer Duncan Hennes will be in charge of risk
management for the renamed Quantum Endowment Fund.
``We've come to realize that a large hedge fund like Quantum
Fund is no longer the best way to manage money,'' Soros wrote in a
letter to shareholders. ``Quantum Fund is far too big and its
activities too closely watched by the market to be able to operate
successfully in the market.''
The departures of Druckenmiller, 46, chief investment
strategist of Soros Fund Management LLC, and Roditi, 54, who
racked up average annual gains of 39 percent since 1992, could
prompt investor defections. The two men managed two-thirds of the
firm's assets and their funds have been hurt this year by bets
using borrowed money in Internet and telecommunications stocks.
Soros, 69, said in the letter that the firm had already
raised enough cash to meet demands by investor who want to pull
their money from the fund.
The Soros funds were battered as the Nasdaq Composite Index -
- a benchmark for technology stocks -- fell as much as 37 percent
between March 10 and April 17. The shakeup at Soros's firm comes
a month after Julian Robertson said he would close Tiger
Management LLC, until last year the world's second-largest hedge fund group.
Druckenmiller, who managed the $8.2 billion ? Quantum Fund and
Roditi, who oversaw the $1.2 billion Quota Fund, will retire from
active management of the funds, Soros said. Druckenmiller has
been running investments at the firm since 1989, when Soros stepped
aside to concentrate on philanthropy.
``These two men are the foundation of the brand-name status
of Soros Fund Management among hedge fund investors for the last
decade,'' said Colin Negrych, principal at Barclay Investments
Inc. ``They are legends.''
Their fall highlights the difficulty of using leverage to
bolster market investments at a time when U.S. financial markets
are at their most volatile ever. The Nasdaq rose or fell more than
6 percent in one day six times in the past month.
Tech Stock Slump
Roditi has stepped away from managing Soros's money before.
He took a medical leave in October 1998, but came back a few
months later. A native of what is now Zimbabwe, Roditi studied law
in South Africa and business at University of London. He founded
S. Roditi & Co. in London in 1992, the same year he started
managing money for Soros.
Druckenmiller was the architect of Soros's more than $1
billion winning bet against the Bank of England's defense of
sterling in 1992. He lost 22 percent from the firm's flagship
Quantum Fund this year while Roditi's fund has plunged 33 percent.
Almost all of their losses came since March.
``Our long stock portfolio had been geared toward the new
economy, and we got taken apart in the last few weeks,''
Druckenmiller said in an interview on March 30, the day Robertson
announced the closure of his funds. ``My macro trading hasn't been
pretty the last month or two.''
Druckenmiller piled into technology shares such as Qualcomm
Inc. late last year, driving performance up 35 percent in 1999,
exceeding the 21 percent advance of the Standard & Poor's 500
Index. The previous three years, Quantum's returns were lower than
the S&P 500, and Druckenmiller's own record of 30 percent
average
annual returns between 1989 and 1999.
Roditi's fund was hurt recently because of hefty investments
in technology stocks and also because ``he thought the euro was
looking cheap,'' said Iain Jenkins, editor of EuroHedge, a London-
based newsletter that tracks the hedge fund business. The euro has
fallen 9.7 percent against the U.S. dollar this year.
Firm's Future?
A month ago, 67-year-old Robertson said he would close Tiger
because his style of picking stocks was no longer working. He had
averaged annual returns of 25 percent since 1980 and as recently
as mid-1998 was almost even with Soros as the largest hedge fund
group.
``Julian Robertson is gone, Michael Steinhardt has exited the
business and now Stanley Druckenmiller is leaving Quantum,'' said
Michael Goldman, managing director of Momentum, which has
investments in Soros funds. ``The climate has been very hard on
`macro' investors.''
``I think there's going to be some more fallout within the
hedge fund industry,'' said Nicola Meaden, chief executive of Tass
Investment Research, a London-based research firm.
The strains on Druckenmiller have mounted over the past four
years, when his performance often lagged. The New York-based
firm responded last August by bringing in Hennes, a veteran of Bankers
Trust Corp., as chief executive officer to manage the group,
allowing Druckenmiller to focus on investing.
While Soros's flagship funds tumbled, the firm was increasing
its focus on investments in Asia and European venture capital. The
firm is raising as much as $1 billion to invest in Asian real
estate and may move Richard Georgi, a former Goldman Sachs
Group Inc. banker who now works for Soros Real Estate Partners in
London, to Tokyo to run the business.
Soros said the Quantum Fund will be preserved ``as a monument
more lasting than bronze'' and will continue its investing in real
estate and private equity transactions.
In Europe, Soros emerged as one of the main investors in
Stockholm-based Internet investor Speed Ventures, which recently
raised $70 million from Chase Capital Partners, Goldman Sachs
Group Inc. and others.