Closing The Hedge Fund Manager Tax Loophole Would cost $4 Billion Annually From The 25 Richest Managers. No wonder Carl Icahn, George Soros, Stanley Druckenmiller, John Paulson all are deciding that managing money for others may create more headaches than necessary.

“Look at the uncertainty,” said one senior Fed official. “Are we facing deflation or inflation? Are we up or down? Growing or not?”


In his letter to investors, Mr Druckenmiller said that having posted positive results in 2008 and 2009, he had been hopeful that his Duquesne Capital Management would continue its “unbroken record of positive performance” in 2010.


However, he said that he had now decided to close his fund after 30 years because the results so far this year “did not match my own, internal long-term standard”.


Fomer Soros Fund Management LLC trader John Zwaanstra plans to return outside capital in Penta Investment Advisers Ltd., the Asia-focused hedge fund he set up in 1998, said two people with knowledge of the matter.

The company plans to give investors more details this week, said the people, who asked not to be identified.


Penta managed as much as $2.9 billion in mid-2011, about 40 percent of which came from Penta principals, said another person. Its assets have fallen below $2 billion, said one of the people familiar with the plan to return investors’ money.

Zwaanstra and John Pridjian, chief financial officer of Penta Investment Advisers, didn’t reply to Bloomberg e-mails. Zwaanstra’s younger brother Todd, who works as a trader at its Hong Kong unit Old Peak Ltd., declined to comment, citing a company policy of not talking to the press.

Eurekahedge Asian Hedge Fund Index dropped 8.3 percent last year, the second-worst annual loss since the Singapore-based data provider began keeping records in 2000, according to preliminary data. Its global hedge fund index declined 4 percent.

“An increasing number of Asia’s best investors are quietly closing down their public funds in favor of a lower-profile approach to investing,” Peter Douglas, principal of Singapore- based advisory and wealth-management firm GFIA Pte, said an e- mail. “Excessive regulation and the increasing demands of institutional investors are among the main drivers to ‘go underground’ and continue investing in an unconstrained and focused fashion.”

About 123 Asian hedge funds closed in the first 10 months of 2011, almost the same as for the entire 2010, as performance faltered and managers struggled to raise capital, according to Eurekahedge.

Boyer Allan Investment Management LLP, another Asia-focused manager set up in 1998, told investors last month that it will liquidate most of its funds, a person with knowledge of the matter said then. Its flagship Pacific Fund returned more than 15 percent a year on average in its 13-year history yet reported annual losses in 2008 and 2011.

Zwaanstra set up Penta after a three-year stint with Soros Fund Management, raising more than $500 million initially. He joined Jardine Fleming Holdings Ltd. in Tokyo after graduating from Harvard University in 1988.

Penta once ran the largest Japan hedge fund which returned more than 155 percent in 1999 before falling 47 percent the following year.

The manager froze redemptions from its then $650 million Japan hedge fund in December 2000 for two months, saying limited trading in shares of small Japanese companies and high-yield bonds made it unable to sell securities to meet withdrawals without hurting remaining investors.

In 2003, Zwaanstra returned more than half of the assets under management in the $900 million fund when trading volume fell on Japanese markets, London’s Financial Times reported then.

Soros Fund Management, Zwaanstra’s former employer, decided in July to return outside capital and focus on running assets for George Soros and his family who made up the bulk of its then $25.5 billion assets to avoid having to register with the Securities and Exchange Commission by March 2012.

As a member of the international advisory committee at the New York Fed and a member of the committee that advises the Treasury on borrowing, Mr Druckenmiller was prescient in warning of the coming debacle in the housing market, according to participants in such discussions. He also correctly bet on European currency movements in the 1990s.


During the negotiations regarding raising the nation’s debt ceiling, congressional Republicans have gone to the mat to defend all manner of unwarranted tax breaks, including those for oil companies and corporate jet owners. Despite the drain on the Treasury caused by these tax breaks — and the negligible benefit they provide — Republicans have threatened to allow the nation to default on its obligations rather than abandon them.


One of the tax breaks upon which President Obama has focused is a provision that allows hedge fund managers — who make billions annually — to receive a substantial tax break. This particular tax break, known as the carried-interest loophole, allows hedge fund managers to treat the money they receive from investors as capital gains, subject to a 15 percent tax rate. Though this money is a paycheck received for services, just like a movie star receiving a bonus if her movie does well, it’s treated as investment income.

A few weeks before announcing his re-election campaign, President Obama convened two dozen Wall Street executives, many of them longtime donors, in the White House’s Blue Room.


Last year, Mr. Obama’s campaign manager, Jim Messina, traveled to New York for back-to-back meetings with Wall Street donors, ending at the home of Marc Lasry, a prominent hedge fund manager, to court donors close to Mr. Obama’s onetime rival, Hillary Rodham Clinton. And Mr. Obama returned to New York this month to dine with bankers, hedge fund executives and private equity investors at the Upper East Side .

His most glaring error, according to acquaintances, was committed a decade ago, when he failed to reverse course and cut long positions on new economy stocks swiftly enough just before the dotcom crash.


The octogenarian fund manager will end his nearly four-decades long run as one of the world’s most storied hedge fund managers by becoming a family office, the report said. His chief investment officer, Keith Anderson, will leave. New regulations were cited as pushing Soros to take his decision.


A Soros spokesman did not immediately return a call seeking comment.

Many wealthy and well-established fund managers, including Carl Icahn and Soros’ former deputy Stanley Druckenmiller, are deciding that managing money for others may create more headaches than necessary.


Fresh financial regulations will force formerly loosely regulated hedge funds to register with the U.S. Securities and Exchange Commission and provide far greater details about how they operate and make money than ever before.

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