In fact all he is doing is no longer investing for other people, which really never amounted to that much anyway.
Soros, 81, says he will now only run his family’s money ($24.5bn) and he will be returning outside investors’ assets ($1bn) to them. The decision, heralded by the press as his retirement, was based on the increased regulation his firm would face in its forced registration with the US Securities and Exchange Commission (SEC) by next March.
His firm is not alone in that requirement many UK-based hedge fund groups must also comply. Under the Dodd Frank Act, non-US hedge fund firms managing more than $25m in US investor assets or with more than 15 US investors, must register with the SEC. For US groups that threshold is much higher, at $150m.
After registration, the hard work begins. Reportedly hedge fund groups must keep the SEC fully informed of their business and investment practices. Managers will also need to maintain clear and concise records of emails and investments, identify their prime brokers and auditors and establish a compliance programme. Hedge funds will also be subjected to SEC inspections and examinations.
For FSA-authorised firms that may not seem too difficult a regulatory burden as many of the requirements are ones they already follow. The one main difference will be that UK hedge fund companies, including large groups like Threadneedle or small boutiques, will have to make information public they haven’t reported before. With many considering hedge funds to be unnecessarily secretive that is no bad thing from the investor’s point of view.
However, for some hedge funds, the spotlight may not be overly welcome. Despite all of this the SEC measures are unlikely to drive other groups to take the same approach as Soros to avoid the changes, compliance and regulation consultant IMS says. Peter Moore, head of regulation and compliance at IMS, says for Soros’ situation is unique in that the company didn’t run much external money so it made it easy for it to qualify for the family office exemption.
Others would not find that so easy.
UK hedge fund groups do have the option of dropping all ties with the US market, curtailing their exposure to US investors and their money. However, Moore doesn’t think that is a very attractive choice for many firms as the US has a large, quality investor base few are likely to want to ignore.
Most UK firms also have the option of a lighter touch regime under the Dodd Frank Act, something Moore believes the majority of UK hedge funds will fall under. If a UK firm doesn’t have a US office or presence then they do not have to register with the SEC, instead they become ‘reporting’ companies, which has lighter requirements.
Regulations have become a growing headache and expense for many firms. Soros’ solution to exit the external market to avoid may be an extreme example and an option in which he was uniquely positioned to take but it does go to underscore the growing burden regulation poses for investment companies.
UK firms have enough to contend with in the form of national and European laws, the widening influence of the US laws, in Dodd Frank as well as FATCA, may just be the straw that breaks the camel’s back.
