(Bloomberg) -- Very few hedge fund managers start with $2 billion from investor George Soros. One who did, Scott Bessent, has returned much of it as part of a prearranged deal.
The plan between the two men called for Bessent, who started Key Square Group in 2016, to give back Soros’s capital as the hedge fund gathered assets from other investors, according to a person familiar with Soros’s family office who requested anonymity. Soros was down to $853 million in a managed account at Key Square at the end of 2017, according to a March regulatory filing.
Bessent, who had earlier served as the chief investment officer at Soros Fund Management, has collected about $5.1 billion in assets, according to a filing. While getting money from Soros was an early boost for Bessent, Key Square’s record of mostly outperforming rival macro managers has helped lure new capital from investors.
“If you are running money for him and you are putting up good numbers, everybody in the world wants a piece of you,” said Richard Klitzberg, whose namesake firm helps hedge funds find investors.
Klitzberg said deals like the one between Soros and Bessent are not uncommon. Both sides have something to gain. Startup managers get additional cash flow. And Soros gets to continue investing with Bessent.
While Bessent was CIO, the billionaire’s family office earned about $10 billion in profit, or about 13 percent annualized.
In Bessent’s inaugural year at New York-based Key Square, he logged a 13 percent gain, followed by a 7 percent loss last year. The firm has rebounded in 2018 with an 8 percent increase year-to-date, according to investors.
Soros also benefits by paying lower fees than most Key Square investors. They pay a 1.5 percent management fee and 15 percent of profits, which is below the industry average, in exchange for locking up their money for about 2.5 years.
Soros Fund Management, which converted into a family office in 2011, allocates some of its $26 billion in assets to outside managers such as Key Square and Glen Point Capital, another macro firm. Since naming Dawn Fitzpatrick as CIO in early 2017, Soros has been pulling more money back in-house.
Last year, the firm hired Adam Fisher from CommonWealth Opportunity Capital to focus on global macroeconomic trades. CommonWealth, which had counted Soros as one of its biggest investors, was wound down.
In addition to the money from Soros, Key Square had about $4.2 billion in assets at the end of 2017, according to filings. In the Key Square Master Fund, assets increased to $2.9 billion from $2 billion during 2017, while the number of investors jumped to 125 from 75.
Spokesmen for Soros and Key Square declined to comment.
©2018 Bloomberg L.P.
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