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Market to Soros: Bigger you are, harder you fall

Published Oct. 2, 2005

Currency speculator George Soros' Quantum Group of Funds lost $2-billion in Monday's market plunge, its heaviest one-day loss ever.

The Quantum Group has seven high-risk hedge funds that bet on stocks, bonds, currencies and commodities worldwide with borrowed money. The funds, based in the Netherlands Antilles, are sold in Europe but are not open to U.S. residents. Soros Fund Management LLC, based in New York, is their principal investment adviser.

Half the losses were sustained by the $10-billion Quantum Fund, the group's flagship fund.

"The recent volatility in the world's financial markets is reflected in the volatility of the Quantum Group's performance," said Soros Fund spokesman Shawn Pattison.

The funds apparently were hit not only by the plunge in stock markets around the world on Monday but also by the decline in the value of the dollar, which was weakened by the sell-off on Wall Street.

Although the Quantum Fund tumbled 8.9 percent Monday, the Soros funds are on average up 17.7 percent for the year, Pattison said.

In Florida, a Soros-led investment group controls St. Petersburg's Hilton Hotel. Soros also owns a major stake in Phoenix Information Systems Corp., a St. Petersburg-based company that operates airline and hotel reservations systems in developing economic regions, including China.

Monday's sell-off also jolted another well-known trading firm, Niederhoffer Investments Inc., which was wiped out in the stock market rout. Niederhoffer had taken options on the Chicago Mercantile Exchange's S&P 500 futures index and was unable to meet its obligations at the end of the day, the company said.

In an interview with the Wall Street Journal, Stanley Druckenmiller, the Quantum Fund's chief investment strategist, said the firm had recovered little, if any, of Monday's losses in the following days.

"To me, these are the kinds of fluctuations that we have to deal with, for a fund our size, in highly volatile markets," he told the Journal.

In addition to the Quantum Fund, others suffering losses were the group's $3.5-billion Quota Fund, which dropped 10 percent, and the $3-billion Quantum Emerging Growth Fund, off 7.1 percent. Despite the declines, Pattison said the Quota Fund was up 36.5 percent so far this year, and the Quantum Emerging fund has gained 32.5 percent.

The Soros funds also were pummeled in the 1987 stock market crash. The Quantum Fund, then about $2-billion in size, tumbled 30 percent.

But it was Soros' gains in 1992 that brought him international attention. He bet _ correctly _ against the British pound, wagering it would be forced to drop out of a European monetary arrangement. That bet reaped his funds $1-billion.

In more recent dealings, Soros has been attacked by Malaysian Prime Minister Mahathir Mohamed as the cause of Southeast Asia's currency turmoil.

Soros, in response, has called Mahathir "a menace to his country" who was covering up his own failures in managing his economy.

The Quantum Fund, which evolved from another fund set up by Soros in 1969, has gained, on average, 33.2 percent annually over the period 1969 to 1996.