Soros Enlists Outsiders for Reopened Emerging-Markets Fund

The billionaire financier decided not to fold Quantum Emerging Growth into the larger Quantum fund.
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Are billionaire financier

George Soros

and his hedge fund investors gluttons for emerging markets?

Soros has reopened his

Quantum Emerging Growth Fund

, apparently as a result of shareholder disappointment over his decision to close it. Last fall, Soros said he would merge Quantum Emerging Growth Fund into his much-larger flagship

Quantum Fund

. That decision came after the emerging-growth fund was hit hard by turmoil in Asia and overseas stock-market losses.

Soros' decision to maintain Quantum Emerging Growth as a separate fund was disclosed in a Dec. 14 letter to investors.

However, Soros' star money managers Stan Druckenmiller, Nicholas Roditi and Arminio Fraga won't run the money alone. Soros is farming out some of the roughly $1.5 billion committed to emerging markets to a group of outside managers.

"We have been able to make arrangements with various outside managers to run significant portions of the fund," George Soros wrote in an investor letter.

Among those already chosen are global hedge fund manager Marko Dimitrijevic, who runs emerging-markets funds such as

Everest Capital Frontier

. He will oversee $500 million, according to a money manager at another firm. Hari Hariharan, head of

Banco Santander New World Investments Group

, a unit of

Banco Santander

, will run $250 million, the money manager says.

Soros Fund Management in New York confirmed those two managers were among several recruited to manage a portion of Soros' emerging-markets money.

"We have been able to make arrangements with various outside managers to run significant portions of the fund," Soros wrote in the letter. "Soros Fund Management will not provide a macro overlay, but its emerging-market team will continue to manage that portion of the fund not allocated to outside managers."

Dimitrijevic was traveling and couldn't be reached for comment. A contact at his firm's offices in Hamilton, Bermuda, said Everest never comments on the identity of its investors. A spokesman for Banco Santander confirmed Hariharan was managing money for Soros, but said Hariharan declined to comment for this story.

Hedge fund colleagues were puzzled by Soros' choice of Dimitrijevic, whose Everest Capital Frontier was down 72% last year through the third quarter, after three years of returns exceeding 40%.

Like Soros, Dimitrijevic's bet on Russia went wrong. Everest re-entered the Russian market in July 1998 when it looked as if loans by the

International Monetary Fund

could stabilize the economy. But in August, the Russian government devalued the ruble and later defaulted on the country's domestic debt.

However, Dmitrijevic has come to be regarded as something of a marketing genius able to finesse his losses. "He's the thinking man's hedge fund manager," says Bruce Ruehl with

Tremont Advisers

in Rye, N.Y. "He's viewed as a serious leveraged-buyout turnaround kind of guy when it comes to looking at companies, not just an emerging-market bonds trader."

Hariharan left the international corporate finance division of

Citibank

in 1993 to join Banco Santander.

It's not clear where Soros will place his emerging-market bets. Last week, he told an investor conference that until Russia's political problems are solved and more international aid flows in, that country's economic collapse will continue.

"Political clarity and legitimacy are needed for there to be a government that can once again become a counterparty for international assistance," Soros said. "Very frankly, I cannot see Russia emerging from the present troubles without renewed international assistance."

Soros controls a group of the world's biggest hedge funds, among which the best known is the Quantum Fund, with a combined $14 billion to $15 billion under management. Those funds lost as estimated $2 billion in Russia in 1998.

Separately, Fraga, Soros' managing director of emerging markets, is moving to Brazil with his family once the U.S. school year ends, according to two people close to the firm. Fraga will remain a managing director at Soros Fund Management, but his role with Quantum Emerging Markets Fund is unclear. Before he joined Soros, Fraga was a

Central Bank of Brazil

director. A Soros spokesman declined to comment. Fraga also declined to speak for this story.