Institutional Investor's Alpha Magazine - June 2008 - (Page 47)

GEORGE SOROS ALPHA HALL OF FAME hedge funds. I would apply it through the banks. The banks would have to have more minimum reserve requirements if they are lending to a Long-Term Capital Management because it’s got more leverage than a Quantum Fund. In your book — published in April — you present a bleak view of market conditions. Where do you stand today? The dollar has found a temporary bottom, so I wouldn’t necessarily short it. I still think the right thing is to be short stocks, U.S. and European. The market believes that the worst is behind us and that it’s the time to put money in, and I disagree with that. It’s a bear market rally, and I’m surprised actually at how extended it is. I think that the double jeopardy of looming recession and inﬂation is a killer. eorge Soros, whose picture would go equally well in the dictionary next to either “ hedge fund manager” or “swashbuckler,” cemented his reputation as a world-class rainmaker 16 years ago as “the man who broke the Bank of England.” His New York–based Quantum Fund, whose management he has delegated to others in recent years, has an astounding record, having returned, on average, 32 percent annually. Founded in 1970, the fund, which was renamed the Quantum Endowment Fund in 2000, controls $17 billion. But Soros wants to be known for more than market savvy, an ambition evident in his current bestseller, The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means, in which he proffers his theory of reﬂexivity, arguing that instability in markets is the norm. As his 78th birthday approaches, in August, Soros’ zealous political activism is intact — especially in post-Soviet Eastern Europe — through his Open Society Institute and other foundations. You’ve been very critical of recent American leadership. What is it that separates the good hedge fund managers from the great ones? The most unlikely people are the most successful. The real test is whether the hedge fund manager is good for all seasons. Some are, and some aren’t. The Soros way has been described as “unfathomable and unknowable,” and your own son once said you make investment decisions based on whether your back is hurting. Is there some mysticism in what you do? I don’t think there’s any mysticism, but you are dealing with the unknowable. My philosophy — or my theory about markets — emphasizes that the prevailing paradigm underestimates or disregards the element of uncertainty. I consider myself an insecurity analyst, not a security analyst. What can you possibly gain from publicizing your investment philosophy? The U.S. is still the most important country in the world, so obviously the way the U.S. is run has a tremendous impact. It’s ironic that right now the Chinese have a lot more discretion in deciding what’s going to happen economically than we do. It’s the outgrowth of running up our current-account deﬁcit. That we got into that situation is largely because of the way we have managed our affairs. What’s your position on hedge fund regulation? I’m at the end of my career, so I have an excessive commit- It’s the role of regulators to prevent ﬁ nancial crises — and they haven’t done that. I’m as opposed to excessive regulation as I am to excessive freedom for leaving it all to the market. I advocate better regulation: You’ve got to regulate the availability of credit and of money. The instruments exist, but they aren’t used. We have margin requirements and minimum reserve requirements, but they’re meaningless because we’ve got so many synthetic instruments that allow investors to escape them. How exactly would you limit hedge fund leverage? Photographed by Ethan Hill for Alpha on May 29, 2008, in New York. “I’m more interested in whether I have some ideas that can survive me than in preserving GEORGE my wealth SOROS beyond my lifetime.” JUNE 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 47 I don’t think that I would apply leverage limits directly to the

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - June 2008

Investor's Alpha Magazine - June 2008 Contents Letter From the Editor Longs & Shorts Cover Story: Alpha Hall of Fame Bruce Kovner Michael Steinhardt Kenneth Griffin Louis Bacon Steven Cohen George Soros James Simons Seth Klarman Julian Robertson Jr. Jack Nash Leon Levy Paul Tudor Jones II Alfred Winslow Jones David Swensen Looking Ahead: Back to the Future Research Center: Europe Hedge Fund 50 Unhedged: Let the Sunshine In

Institutional Investor's Alpha Magazine - June 2008

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