More turnover at Soros reflects shakeout - Departures - George Soros, Soros Fund Management - Brief Article

Chief Executive, The, Dec, 2002 by Sonja Sherwood

Ever since George Soros passed off the management of his hedge fund, it's become hard to keep track of who's at the helm. The 72-year-old financier has been churning chief executives with the gusto of a day trader flipping shares.

The latest casualty is William Stack, 56, who came to Soros after serving as chief investment officer for equities at Dresdner RCM Global Investors in San Francisco. Stack ran Soros Fund Management for only a year before Soros announced he would be replaced Jan. 1 by Mark Schwartz, 48, the former chairman of Goldman Sachs Asia.

Schwartz is Soros' fourth CEO in two-and-a-half years, reflecting the tumult in the hedge fund universe, where old names like Michael Steinhardt and Julian Robertson have been superseded by young startups, and everybody is facing a shakeout.

Hedge fund investment advisor George Van told Chief Executive he anticipates that flat returns next year will drive between 500 and 750 hedge funds out of the market by the end of 2003. Hedge funds rely entirely on profits to cover their costs and therefore have a hard time surviving even one year of flat returns, much less two. "Inexorably, the economics will prevail," Van predicts.

The shakeout will impact large and small funds alike, but Europe's hedge fund market will likely bounce back faster, owing to its late entry into the fund startup stage, says Van.

Steep losses in the stock market since spring 2000 have signaled the end of the heady '90s, when soaring returns triggered an explosion of new hedge funds. The wild market helped grow the industry from about 2,000 funds in 1990 to 7,500 worldwide, according to Van Hedge Fund Advisors International, an investor advisory firm in Nashville, Tenn. Assets under management have ballooned in the same period from less than $100 billion to $600 billion.

The tragedy of the shakeout to come is that some hedge funds will beat the S&P by 30 percent and still go out of business. The average American hedge fund lost 3.6 percent through September, but the S&P 500 lost 28.2 percent. "Nobody likes to see a loss," Van adds, "but give me a 3 percent loss over a 28 percent loss any day."