The Man with the Midas Touch

By SALLY B. DONNELLY NEW YORK

What does George Soros know that the rest of the world doesn't? When news leaked out that he had purchased a $400 million stake in the largest U.S. gold-mining company, investors piled into the market, pushing the price of the precious metal to a 17-month high two weeks ago. Last week gold soared to a two-year high. Was Soros betting on a new era of inflation caused by governments' printing their way out of debt? Was he hedging against some looming financial Armageddon?

Soros the Speculator was not saying, but in a sense it didn't matter. The mere fact that he was buying into gold was enough to cause a stampede. When unexpected reports of inflation caused the price to rise again last week, it just seemed to confirm his legendary nose for the market. After all, this was the man who led the raid on the Bank of England during last September's European currency crisis, a robber baron, as some called him, who emerged with profits estimated at $2 billion by selling sterling short.

Like King Midas, George Soros has the golden touch. But unlike the miser of mythology, he is happy to part with his wealth. A latter-day Robin Hood, he takes from the exchequers and pockets of the rich West in order to provide much needed capital for the poor East. After the sterling coup, Soros wasted no time in redistributing the spoils: within the next three months he set up a $100 million fund to support science in the former Soviet Union, organized a $25 million loan to Macedonia and then made the largest single private donation ever to a humanitarian cause when he gave $50 million to aid organizations in Bosnia and Herzegovina.

While Western governments dawdle over assistance to the former Soviet Union and Eastern Europe, Soros, 62, delivers -- perhaps as much as $300 million to date. From his pocket. No strings attached. Since 1984 the financier has provided everything from transmitters for independent radio stations in the former Yugoslavia to scholarships in the West for Eastern academics. Through his New York City-based Soros Foundation, he has funded struggling Czech artists as well as education projects in Albania and Ukraine. His philanthropy has made Soros "the most important single force affecting developments in the region," says Steve Larrabee, a specialist on Eastern Europe at the Rand Corp.

Why does Soros spend his money in a region many consider to be a black hole? "I have a fascination with risk," he says in his heavily accented English. "It makes me feel alive. I can get bored just living." While that confession may explain his activities as a speculator and breakneck downhill skier, it is only part of what drives a man who is himself a refugee from the region.

During World War II in Budapest, the Soros family, Hungarian Jews, became fugitives from Nazi persecution, living under assumed names and at times hiding out in a basement. Soros, his parents and his brother barely survived the war, only to see Hungary fall under the fist of the Soviet Union. It was a harrowing time, yet, in retrospect, a positive one for the young Soros. "Nineteen forty-four was the best year of my life," he maintains. "I was 14 when the world intruded on my life. I was old enough to be aware of what was happening, and young enough to be excited by it."

Fleeing Hungary, Soros and his brother ended up in Britain in 1947. George enrolled at the London School of Economics, where, from philosopher Karl Popper, he learned about the links between communism and fascism and the importance of "open societies." The lessons stuck with Soros and now underpin his efforts on behalf of the part of Europe that bore the brunt of both repressive isms and where, he fears, freedom may be at risk if economic and political chaos provokes a return to authoritarian rule. "There are two reasons why I support open societies," he explains. "One is the possibility of actually having an impact, of turning a tragic situation around; and the other, because, simply, history has no end. People may see a black hole where Yugoslavia once was, but in the future those people will survive, and some form of organization will emerge. What we preserve or support now will have a chance later on."

Ivan Berend, a former president of the Hungarian Academy of Sciences and now a professor at the University of California, Los Angeles, describes Soros as a "man on a mission," an heir to the powerful East European tradition of intellectuals guiding a political transformation. "He has become consumed with making a difference," says Berend, former head of the Soros Foundation in Hungary.

Soros can afford to make a difference in the East because he makes money in the West. Lots of it. His personal wealth is estimated at $1 billion, and as the founder and manager of the Quantum Fund -- in effect a series of funds speculating in commodities, currencies, stocks, bonds and sophisticated financial instruments -- he is the brains behind one of the most successful investment vehicles ever created. Fund equity has increased about 400% since 1988. In 1981 Institutional Investor magazine crowned the former L.S.E. philosophy student "the world's greatest money manager."

Deserved as it was, it took Soros a long time to acquire the title. After university he pursued a relatively lackluster career in the City of London and on Wall Street until 1969 when, with partner Jim Rogers and $250,000 in capital, he set up an offshore investment fund that he dubbed Quantum. The name, a tribute to Heisenberg's uncertainty principle in quantum mechanics, was highly appropriate: Soros' investment philosophy is suffused with the belief that markets are constantly in a state of uncertainty and flux and that money is to be made by discounting the obvious and betting on the unexpected. Thanks to his special brand of financial alchemy, he appears to have discovered a modern-day philosophers' stone, not for turning base metal to gold but for turning risk into reward. The original Quantum Fund has spawned several others, and Soros now manages $9 billion -- enough to move markets and make central bankers quake.

There have been risky times and breathtaking losses along the way. Although Soros predicted the 1987 stock-market crash, he lost $800 million by mistiming his withdrawal from the market. That hit, which wiped out close to a third of Quantum's book value at the time, persuaded Soros, who by then was increasingly committed to foundation work, to step back from day-to-day fund management and focus on the broader investment picture. "The crash was an indicator that I could not do two things at once," he concedes. Yet being detached from the daily battle has its drawbacks. Last January, for example, one of his top advisers paid a $640,000 fine to settle charges brought by the U.S. Securities and Exchange Commission, which claimed he had profited from inside information. Although Soros was not involved in the case, he is known to challenge his employees to act aggressively. Soros once asked one of his traders, who was confident of a market move, how much he was willing to commit. When the man answered, "$1 billion," Soros responded dismissively, "You call that a position?"

Despite his talent for trading, Soros has always seen himself more as a thinker than as a money earner, and claims his foundation work "has brought me closer to realizing a real sense of satisfaction than making large amounts of money." His father's experience of losing a lucrative legal business during the war but living well nonetheless provides insight for Soros. "Part of what I learned was the futility of making money for money's sake," he says. "Wealth can be a dead weight."

Only the truly rich can afford statements like that, and fortunately Soros is not about to apply his theories on wealth to the struggling economies of Eastern Europe and Russia where, he fears, the future hangs in the balance. "A traditional market dynamic is that after a crash there is a rebound," he explains. "Right now I see a crash with no bound." Still he remains optimistic, despite the obstacles to creating truly democratic free-market societies in the near future. Rather than backing off, he is stepping up the pressure, urging governments in the West to provide a $10 billion safety net for the unemployed and working poor of the former Soviet Union. He is also planning to add more of his own money. "What is at stake," he says simply, "is the future of civilization."

To other observers, the East may be the apotheosis of Heisenberg's theories of uncertainty; to Soros the Speculator it is the land of opportunity. "The worse a situation becomes, the less it takes to turn it around," he observes, adding with the logic of the consummate trader, "the bigger the upside." It is a quantum leap he is prepared to take.

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