The billionaire investor who beat the Bank of England on Black Wednesday in 1992 and drove the U.K. out of the European Exchange Rate Mechanism (ERM) has given a rare glimpse of the emotional cost of the hedge fund industry as he announced plans to wind up his business.
Stanley Druckenmiller, the inspiration behind George Soros’s famous bet against the pound in 1992, surprised investors by promising to close Duquesne Capital. In a letter to clients, he blamed the impact of three decades in the world of high-stakes finance, and the pain of losing money.
“While the joy of winning for clients is immense, for me the disappointment of each interim drawdown over the years has taken a cumulative toll that I cannot continue to sustain,” wrote Druckenmiller, who has an estimated fortune of $3.5bn.
“I continue to care deeply about performing for our clients, and the stress of performing in a way that I consider to be disappointing — even if you do not share that view — persists in exacting a high emotional toll, with the result that I have concluded that this change is necessary,” he added.
Kenneth Heinz, president of Hedge Fund Research, believes that Druckenmiller’s decision shows the personal capital that he and his fellow traders invest in their businesses.
“There’s no question that fund managers and people who have been in this industry a long time are under great pressure to be successful, not only financially but also personally,” Heinz said.
This has been a tough year for macro hedge funds such as Duquesne Capital, whose trades are based on changes in the global economy. Duquesne is thought to have lost about 5% so far this year, but many rivals appear to be performing worse. Data collected this week by the Financial Times showed several big names are sitting on significant losses for the year so far, some losing up to 10% of their assets.
An invitation to play in a golf tournament this October helped to persuade Druckenmiller to step down. He rejected the opportunity, fearing it would coincide with another bout of market turmoil.
Several other hedge funds have closed this year, and Druckenmiller’s departure suggests the industry is experiencing a major shake-out. Heinz, though, is confident that hedge funds will not suffer a talent shortage. “Even the most successful hedge fund executive reaches a point in their lives when they want to step back from managing capital and do something else, but for every one there are many more people who want to come in and be as successful as Druckenmiller,” he said.
Druckenmiller founded Duquesne Capital in 1981, and it holds about $12bn in assets. He is married with three daughters, and was ranked as the 91st richest American by Forbes this year. Last year he gave $705m to a foundation that supports education, medical research and anti-poverty charities, thought to be the biggest single charitable donation by an American in 2009.
Druckenmiller was chief investment officer for Soros Fund Management on 16 September 1992 when it took a huge position against the pound, winning more than $1bn. This dragged Soros into the limelight, but Druckenmiller should have got the credit according to another Soros employee, Scott Bessent.
“What is so interesting to me was the combination of Stan Druckenmiller’s gamesmanship — Stan really understands risk/reward — and George’s ability to size trades,” Bessent recalled in a book titled Inside the House of Money.
“Make no mistake about it, shorting the pound was Stan Druckenmiller’s idea. Soros’s contribution was pushing him to take a gigantic position.”