The Soros Gambit
George Soros, the Gate of Hell. A native of Budapest, Hungary, he was the greatest fund manager of the twentieth century and the undisputed godfather of hedge funds. His hedge fund, Quantum Fund, first achieved global renown in England in 1990. At the time, Britain had joined the ERM, a transitional system created to build a single-currency zone as part of European integration. Under the ERM, the pound was required to stay within a six-percent band against the German mark; if it threatened to break that range, the Bank of England was obligated to intervene immediately and stabilize the currency. When Britain joined, it had considered the six-percent band generous—smaller economies had been granted only 2.5 percent—and believed the margin would suffice. The plan was to stabilize every currency in the eurozone before launching the euro itself.
George Soros, however, spotted the system’s fatal weakness and launched a bold short-selling assault on the pound that left Britain reeling. The scale of the attack was unprecedented. Once Soros moved, other hedge-fund managers followed in unison; it was as though every pool of hot money on the planet had converged on Britain. The British government raised short-term interest rates in a desperate defense, but the market’s onslaught proved unstoppable. On September 16, 1992, Britain withdrew from the ERM. The pound collapsed in a near-vertical plunge. The hedge funds that had led the attack reaped astronomical profits, while the British government, battered by the assault, suffered fiscal losses so severe that it abandoned the euro project altogether.
That was the kind of man George Soros was: someone willing to attack an entire nation if it served the interests of his fund. After 1997, far more Koreans came to know Soros and Quantum Fund. It was inevitable; his currency raids had not spared Asian nations. From the Thai baht—widely regarded as the spark of the Asian financial crisis—to the Korean won, Soros had targeted them all. After the crisis, he had even acquired distressed Korean banks and companies at fire-sale prices and flipped them for profit. At first glance, he appeared to be nothing more than a ruthless hedge-fund chief who would stop at nothing for gain.
“People are never that simple.”
Yet Soros was not the money-obsessed caricature the public imagined. He had become a fund manager in the first place because he wanted to continue studying philosophy at the London School of Economics. He had calculated that once he earned roughly five hundred thousand dollars he could study without financial worry. After entering the industry, however, everything changed. Of course, that story might have been polished after his success, but his later philanthropy proved it was no empty boast. Through his Open Society Foundations he supported democracy and human-rights activists, donating hundreds of millions of dollars every year. In 2017 alone he gave away eighteen billion dollars. His cumulative donations reached thirty-two billion. Ruthless in the pursuit of wealth, he spent it afterward like a statesman.
“So what exactly does he want to discuss with me?”
The fact that Soros himself had come to the New York headquarters of ID Investment requesting a meeting was something Yoo Jae-won had not anticipated. After a moment’s thought, he decided there was no harm in speaking with the man directly.
“Then connect us via video conference.”
- Yes, Mr. Chairman!
After Vincent Greenhill’s reply, a short wait followed before the video-call request arrived. Yoo Jae-won checked his hair and face in the mirror kept in one corner of his study, then accepted the call. Vincent Greenhill’s office appeared on the monitor, with a smaller window showing Yoo Jae-won’s own image. On the other end, Yoo Jae-won’s face would be displayed large. The feature had existed before, but ID Talk had been upgraded so dramatically in the meantime that it was almost unrecognizable. The most recent major change was seamless integration with mobile phones: one could import a phone’s contact list directly as friends and send text messages to anyone not currently on a computer. While only certain carriers were supported, TG Mobile users could exchange unlimited text messages between PC and mobile through ID Talk. Emoticons had also undergone a revolution; instead of the old smiley-face icons, the app now featured animal characters. Video chat had likewise been transformed. Focus had shifted to high definition and high fidelity; what had once looked like VCD quality was now, without exaggeration, true HD. Of course, HD required a good webcam, a high-end audio card, and sufficient bandwidth, but these specifications had become standard for ID Group employees. The moment Yoo Jae-won clicked accept, the call connected at peak quality.
Beside Vincent Greenhill appeared a refined middle-aged man. Though he looked considerably younger next to the still-vigorous Vincent, George Soros’s hair was unmistakably more than half white. Even though he was presumably comfortable with computers, he seemed unfamiliar with video conferencing; the camera caught him staring curiously at the monitor. Vincent Greenhill soon began explaining how the system worked. Once the explanation was finished, Soros took his seat and faced Yoo Jae-won directly.
- Remarkable. Real-time video communication. ID Group certainly has no shortage of wonders.
“Is that so? We’ve been communicating this way for years, so it feels quite ordinary to us.”
- It really drives home that ID Group’s core identity is an IT company. Your research labs must be producing inventions that will astonish the world.
Soros smoothly accepted the boast while making no effort to hide his desire to extract information ahead of others. Having repeatedly turned early information into enormous profits, his speech naturally carried that edge.
“Of course. You’ll see them soon enough.”
Yoo Jae-won did not fall for such a shallow probe. ID Group’s subsidiaries had countless items in development for the future, some of which would shock the world upon announcement. Yet even the most brilliant technology required more than raw superiority to succeed; timing was equally vital. The market was littered with superior products that had failed simply because they arrived at the wrong moment. Even armed with future knowledge, Yoo Jae-won knew that an item once wildly successful in the past could still collapse if launched prematurely. In fact, he already held several such items in reserve—electric bicycles, Next Music, and P Market among them. Electric bicycles were fashionable inside Silicon Valley, yet sales plummeted the moment one left San Francisco. Next Music had been launched only in Korea and was growing at a modest thirty percent annually; while thirty percent sounded respectable, the user base had yet to exceed one million. Compared with Nextcom, which added millions of new subscribers every year, the figure was modest. Yoo Jae-won did not consider the service a failure, however. Music streaming was a field that would grow alongside the mass adoption of mobile phones and MP3 players, and MP3-player penetration was still low. Flash-memory capacity remained limited, and many people balked at paying for downloads. Time would solve those problems. Releasing new items too early would only delight competitors eager to steal the technology. Until the moment ripened, nothing world-shaking would be unveiled.
“In any case, what brings you to ID Investment’s headquarters seeking a conversation with me?”
Before the discussion could drift further off course, Yoo Jae-won steered it back.
- ID Investment’s East Asian economic report, released at the beginning of the year, was extremely interesting. Upon closer inspection, I was told that the backbone of that report was prepared by Chairman Yoo himself. That is why I have taken the liberty of coming in person to hear your views directly.
Remarkably, Soros produced the very report that had been issued for domestic Korean consumption. What surprised Yoo Jae-won even more was that Soros also held an English version—yet he had chosen to bring the original Korean-language edition. Naturally, the Korean and English versions differed not only in script but in content. There had been no need to disclose the early signs of the East Asian currency crisis to foreign investment firms or hedge funds, so large sections concerning the crisis had been excised from the English edition. Yoo Jae-won had assumed no one would notice the discrepancy. Korea had hosted the Olympics and the Expo, joined the OECD, and considered itself among the advanced nations. In reality, its weight in the global economy remained modest. Much of the capital that appeared to be foreign investment had actually been Japanese yen-carry-trade money. Genuine overseas investment, excluding that channel, had been limited. Ironically, it was only after the currency crisis erupted and foreign speculative capital poured in to buy Korean assets at distressed prices—then exited with enormous gains—that substantial foreign capital began to flow into Korea in earnest. The report that Korea’s high officials had sent out as a wake-up call had somehow reached George Soros instead. The realization stirred many thoughts in Yoo Jae-won, yet he showed none of them.
“Oh? You’re the first person I’ve met who’s shown interest in that report.”
- Is that so? Then it is all the more an honor.
Soros answered with the expression of a man who already knew a great deal.
- The section on the chain reaction of currency crises particularly caught my attention. If such a scenario were to unfold in reality, I would be most curious to know where you believe it would begin.
The voice that reached him, despite belonging to a man past fifty, burned with intensity. It was understandable. Soros’s Quantum Fund had first gained its towering reputation with the short-selling attack on the British pound. That single operation had brought him immense wealth and fame and placed him where he stood today. Naturally, any situation offering optimal conditions for currency speculation commanded his attention. Yoo Jae-won did not answer at once. Instead he studied Soros’s eyes. With the old low-resolution video the gesture would have been pointless, but even at the 4:3 aspect ratio the HD feed captured the smallest details. The glittering intensity in those eyes told Yoo Jae-won that Soros had already formed his own estimate and was merely testing the waters. Whatever answer Yoo Jae-won gave would clearly shape Soros’s response.
“From the look of it, Chairman Soros, you seem to have already reached your own conclusion. Why don’t we each write it down and reveal our answers at the same time?”
- Interesting. Very well.
Anyone familiar with Romance of the Three Kingdoms would have recognized the allusion to Zhuge Liang’s anecdote, but Soros evidently had not read it. Nevertheless he agreed to the proposal and asked Vincent Greenhill for paper. The writing instrument he chose was an old-fashioned fountain pen. Yoo Jae-won, by contrast, used a convenient marker and wrote in large, bold strokes.
“Shall we show them? One, two, three!”
- Thailand.
- ราชอาณาจักรไทย (Kingdom of Thailand).
Both men had written the same answer. Yoo Jae-won had added a playful touch by rendering “Thailand” in Thai script, momentarily startling Soros.
- You appear to be quite versed in the Thai language as well.
“Only enough to scribble the characters.”
After recovering from the brief surprise, Soros recognized that their answers matched and allowed a satisfied smile to surface. While the smile lingered, he continued.
- Until now I could not understand ID Investment’s extraordinary growth. Now I feel I have glimpsed the secret behind it.
He offered the praise without hesitation. Westerners dispensed compliments lightly, yet this time the admiration felt genuine. The compliment, however, was not the end.
- When I first read the report, I was astonished to discover someone who shared my thinking. At the same time, I became intensely curious about how you intend to act. I am not asking you to reveal everything, but if our views align, might we not move together to maximize our mutual profit?
Exactly as expected. Although Quantum Fund was large by hedge-fund standards, it remained modest compared with mutual funds or sovereign-wealth funds. At its peak in the early 2000s it had managed roughly thirty billion dollars; its current size was certainly smaller—perhaps fifteen billion at most, possibly less. Yet to regard that figure as the absolute maximum Soros could mobilize would be to underestimate him. Famous for aggressively employing every available lever of leverage, he could, at least temporarily, command several times his own capital. Yoo Jae-won understood the proposal at once: the risk would be halved if shared, and the profit would be greater if the attack were launched together. Soros was suggesting they join forces for the coming assault on Thailand.
- Precisely.
For Yoo Jae-won there was nothing inherently wrong with cooperating. Still, one question had to be settled first.
“Before I give you my answer, I have a question of my own. If the chain of financial crises we anticipate sweeps across East Asia, where do you think it will ultimately end?”
- Hmm? A difficult question.
At the sudden query, Soros let out a low groan and stroked his chin, his expression deeply troubled. Yoo Jae-won’s gaze, by contrast, never wavered. Korea’s response to the currency crisis had already been decided. Soros’s unexpected intervention had merely altered the variables; his answer would determine whether they would proceed together or follow the original plan.