George Soros’ recent announcement that he was returning client assets and would manage only his family’s money did not surprise Ellen Schubert, chief advisor to Deloitte’s hedge fund practice. Soros said his decision to retire was driven by the new regulatory environment emerging from the Dodd-Frank Act.
“Soros won’t be the last,” Schubert told AdvisorOne in a telephone interview on Wednesday. “Hedge fund managers generally are very smart people who have usually enjoyed what they were doing.” Some have been in the game for a long time, and have made a lot of money.
Earlier this year, Schubert described a trend among startup hedge funds faced with the prospect of meeting SEC registration requirements if they were going to hit the $150 million limit early on. Rather than accept institutional capital, some were considering managing only family money in a single-family office. She speculated that even well-established managers might consider reverting to the family office structure.
But the joy has gone out of the hedge fund business for these big players, she said. “It’s not fun to have to deal with Washington politics. Now people who can afford to do so are throwing in the towel and saying no thank you. I understand where they’re coming from. I don’t like the trend, but I would guess there would be more of that coming.”
Carl Icahn, Chris Shumway and Stanley Druckenmiller have also recently reconstituted their hedge fund operations in the face of new regulations.
The situation for many startups if anything has eased in recent weeks, Schubert said. For one thing, money for new managers is coming in very slowly, so exceeding the $150 million threshold is a moot point for the foreseeable future. As well, this summer’s uncertainty and turmoil in Washington have pushed the new regs to the back burner.
“Some of these startups are saying ‘I’m not going to worry about what happens,’” Schubert said. They are focused on raising capital.
She noted, however, that other startup hedge funds that expect to have more than $150 million under management from the get-go cannot afford to be sanguine, as they have to decide by March 30, 2012 whether to register with the SEC and incur the considerable expense of putting an infrastructure in place, or simply manage their own money and build their business over time as they accumulate assets.