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George Soros sidesteps US regulation by switching to be a family office. Is it a major trend? Peter Moore, Head of Regulation & Compliance, The I

Date: 02 Nov 2011

Citywealth

“The announcement that George Soros is retiring from managing funds seems in part to be a consequence of the current volume of regulatory change stemming from the 2008 financial crisis. Due to a recent amendment in US securities law, the Soros firm would have had to have registered with the SEC by March 2012. As such it would have become subject to a regime requiring it to provide, initially and on an ongoing basis, a sufficient amount of information about investors, employees and investments and also to SEC onsite inspection at periodic intervals.”

“George Soros’ firm however, as one of the largest asset managers in the world, has probably the highest proportion of “family” money, perhaps more than ninety seven percent, of asset managers of this scale. It is reported that there was $700m of external money that would have triggered onerous regulatory obligations in respect of the entire firm and its assets under management and so the firm was too close to qualifying for the “family office exemption” from otherwise mandatory SEC registration to ignore.”

“Accordingly, the announcement of this development seems much more opportune than a deliberate statement about regulation or in fact anything. Mr Soros clearly doesn’t need the fees from managing this external money so the decision to return external money seems to have been as a result of a simple cost/benefit analysis of managing it. Soros Fund Management will continue managing a large amount of money reported at around $24.5bn and will remain one of the largest and most influential investors in the world.”

“Increasing regulatory requirements are often described as a motivation for retirements or relocations in the hedge fund world. However, few other hedge fund managers are likely to follow suit given the unique characteristics of Soros Fund Management. The most operative reasons for the timing of a hedge fund manager’s retirement are likely to be personal circumstances and fund performance. With performance in 2011 in many strategies behind previous years’, we may see some fund closures and retirements in the near future. Some may cite the growing spectre of regulation as a major reason, however this is rarely the case.’

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