Hedge Funds

Soros sees 'shakeout' downsizing hedge fund world

CAMBRIDGE, Massachusetts (Reuters) - The global financial crisis will reduce the hedge-fund industry to as little as a third of its current size, billionaire investor George Soros said on Tuesday.

Chairman of Soros Fund Managment George Soros is shown in this file photo from October 28, 2008. The global financial crisis will reduce the hedge-fund industry to as little as a third of its current size, says Soros. REUTERS/Adam Hunger

“The hedge-fund industry is going to move through a shakeout,” Soros, one of the world’s first hedge-fund managers and still among the best known, said on Tuesday in a speech at the Massachusetts Institute of Technology.

“In my estimation (the industry) will be reduced in size by anywhere between half and two thirds,” he said. He did not specify if he was talking about the number of funds or the amount of money invested in them.

Many of the ultra-wealthy investors who fueled a doubling in hedge-fund industry assets to about $1.9 trillion (1.1 trillion pounds) across roughly 10,000 of the loosely regulated funds worldwide in the last three years have been pulling their money out, fearful of hedge-fund failures.

To stabilize the economy, regulators should oversee credit markets, which will make some aspects of the financial services business less profitable, said Soros, one of the first voices to proclaim the severity of the current financial meltdown.

“You must regulate credit as well as money and that does require more regulation,” he added. “Undoubtedly, the financial business will not be as profitable as it has been in the past 25 years.”

In recent years, finance companies accounted for as much as 40 percent of U.S. corporate profitability, said Soros.

“That was an excess and that we will not come back to,” he said. “Regulation will certainly make some businesses unprofitable and certain businesses that rely on excessive leverage ... will prove to be unworkable.”


Soros, 78, said the International Monetary Fund needs to move to protect emerging markets or else today’s global financial system will not last.

“The IMF has a new mission. It has to protect the periphery against the storm at the center,” Soros said, referring to the U.S. and developed Western economies that are at the center of the global credit crunch.

“Unless actually the United States now leads an international effort to stabilize the system which includes the peripheral countries, I think the system will not continue.”

A staunch Democratic Party supporter, Soros said he did not expect such a move out of the current White House.

“I don’t expect this president to do it but I expect the next president to do it because otherwise the system will not continue, there will be a different system that will emerge and the United States will not have the influence that it has today,” Soros said.

Soros, chairman of Soros Fund Management, supported U.S. presidential hopeful Barack Obama during the Democratic primaries, and his views on public policy are more like those of the Illinois senator than his rival for the Oval Office, Republican Sen. John McCain of Arizona.

Reporting by Scott Malone; Editing by Jason Szep and Carol Bishopric