When Great Investors Retire

Published in Investing on 19 August 2010
It's hard to embrace bingo when you've made billions.

18 years ago Stanley Druckenmiller beat the market and made headline news around the world. Now the market has finally beaten him.

It was New York-based Druckenmiller who executed George Soros' famous bet on Sterling devaluation that led to Britain's inglorious ejection from the ERM -- the precursor to the Euro. Druckenmiller made $1 billion for the maverick Soros with the controversial operation, though it was Soros who was eventually dubbed 'the man who broke the Bank of England'.

Yet Druckenmiller is a legend in the hedge fund industry, as much for his long track record as for his infamous currency bet. Up until the last three volatile years, his average annual return since 1986 was running at 30%.

To help keep up this spectacular record, Druckenmiller parted company with Soros Fund Management a decade ago, saying that its assets had become so unwieldy it was damaging his returns -- and his mental state.

And this week he's written to the 100 or so investors who have placed some $12 billion with his Duquesne Capital Management hedge fund company to disclose the same thing has happened again.

While Druckenmiller enjoyed returns of 11% in 2008 (against negative returns in the vast majority of funds, whether hedged or otherwise), he only managed 10% in the 2009 rally, while he's down 5% so far this year. That puts Duquesne Capital Management on track for its first negative year.

Enough, says the billionaire, who is worth $2.8 billion according to Forbes. At 57, Druckenmiller has decided to wind up his investment vehicles to spend more time on golf, charity, and his family.

Old age asset allocators
It will be interesting to see whether playing for birdies can hold Druckenmiller's attention as much as playing for billions.

Few investors consistently beat the market, let alone by the margin Druckenmiller achieved. Whether through skill, luck, or taking on excess risk, he has sat at the top table of super-investors. Leaving won't be easy.

His old mentor George Soros might tell him as much. While he's spent most of the past two decades using his vast wealth to support his political and philanthropic aims, in the past few years Soros has notably been back in the markets and on the airwaves making pronouncements about the economy. At the grand old age of 80!

Druckenmiller might also ask Soros' former business buddy Jim Rogers for some contrarian advice. Rogers retired way back in 1980 and travelled the world on a motorbike, only to find his fascination with emerging markets spurred him to reinvent himself as a commodity guru and speculator.

Then there's the most famous old men in investing -- Warren Buffett and Charlie Munger.

Buffett's 80th birthday is next week, and Munger is already closer to 90, but both are still doing the business for Berkshire Hathaway.

Knott any longer
Here in the UK we're set to wave goodbye to another super-investor, although one with a career on an entirely different scale to the aforementioned names -- both in terms of his profile and of the scale of the assets in question.

Simon Knott is the Chairman of Rights and Issues Investment Trust (LSE: RIII), a tiny UK-based split-cap investment trust that focuses on smaller companies and that at times has enjoyed cult status among private investors.

No wonder. Between 1984 and the end of 2007, Knott multiplied the Net Asset Value of the trust's capital shares (LSE: RIIC) just shy of 29 times over. In contrast, the FTSE All-Share rose between five and six-fold.

Given the notorious illiquidity of many UK small caps, Rights and Issues sensibly buys and holds its shares for the long term. But investors might still have expected Knott to see the problems stored up in the economy ahead of the credit crunch, and to take some sort of evasive action.

For whatever reason Knott didn't, and the trust's capital shares fell from just shy of £40 each in 2007 to under £10 in the lows of the bear market.

They've since bounced back strongly -- to 1,843p as I write -- which has perhaps prompted Knott to call it a day while the going is good. At nearly 80 compared to Druckenmiller's 57, I think he's showing better timing than the hedgie.

Bolt-on career extension
Ultimately, great investors don't find it any easier to retire than famous rock stars or actors. There's always going to be a temptation to do one last world tour, movie, or trade.

Fund manager Anthony Bolton -- who achieved average annual returns of nearly 20% for almost three decades for Fidelity -- showed us as much earlier this year, with the launch of the Fidelity China Special Situations (LSE: FCSS).

57-year old Bolton was meant to have put himself out to pasture. But retirement soon led to a book launch, then a few high-profile market calls during the credit crunch, and before you know it Bolton was back talking up the opportunity for value hunters in China with a new fund.

Bolton says he will only be running Fidelity China Special Situations for a few years.

We'll see!