When George Soros Became a Billionaire

In 1992, George Soros made a name for himself by betting big against the British pound. At the time, hedge funds were not as commonplace as they are today. His bet made him a billionaire. It all started after World War II most European countries wanted to tighten their relationships. They felt that this would reduce wars between them and help them get along with each other better. They also felt that it would help them compete more aggressively with the United States. This was the first step towards forming the European Union.

The process started with the European Exchange Rate mechanism (ERM).. At the time most European countries did not want to give up their national currencies but they felt it was to their advantage to use a fixed exchange rate with each other instead of letting their currencies float in the market on http://www.georgesoros.com/the-life-of-george-soros/. At the time Germany had the strongest currency and economy so each country set their currency valuation in Deutschmarks. Once the exchange rate was set they had to maintain their currency within 6% of that figure.

Britain entered the ERM, an exchange rate of 2.9 Deutschmarks for each pound. This meant the pound had to stay with in an exchange rate of 2.78 DM 23.13 DM. At first things worked out well for Britain. In 1992 England went into a recession. Officials in the government found that their hands were tied. They could not take needed action to help their economy. They needed to devalue their currency.

George Soros as head of Quantum Fund, a hedge fund in New York, heard about what was happening. He bet against the pound. He won. George Soros and his team had been positioning themselves to take advantage of what they saw as an imminent decline in the pound. They did this by shorting the 15 billion pounds. As others began to realize what was going on they joined the bandwagon and started shorting the currency. The Bank of England was not in a position to absorb all the pounds being sold. So, shortly this situation became a self-fulfilling prophecy on http://www.theatlantic.com/magazine/archive/1997/02/the-capitalist-threat/376773/. On September 17, 1992 the Bank of England had to devalue their currency. It was down 10% against European currencies and down almost 25% against the US dollar.

George Soros and his team made a fortune for their investors. The value of his fund increased from $15 billion-$19 billion. Several months later it was worth almost $22 billion. As a hedge fund Soros and his team made 20% on the profits. It came to nearly $1.4 billion in fees. This is when the name George Soros became what it is today.