Anyone who was alive and older than five in 1992 will remember George Soros’ hedge fund making profits on September 17th, or “Black Wednesday” as the British call it. The reason they made so much that day is undeniably clear: the British pound had to have its value lowered in comparison to other currencies.
A new article released on ValueWalk offers a quick look into the economics behind how that came to pass and how George Soros and his hedge fund managed to nab such a profit that day. The explanation comes from Soros’ book Priceonomics, and is quite interesting.
It all began with a bet. This little bet simply said that George Soros thought that the British pound would be devalued soon. Others were betting that the British pound wouldn’t be devalued. However, Soros was backed by his hedge fund.
Together, they had bet about $15 billion that the British pound’s value would fall. At this point on https://en.wikipedia.org/wiki/Soros_Fund_Management, Soros was not the billionaire he’s known as today. The hedge fund company and Soros himself had borrowed most of that money. That borrowing did pay off, of course, but it took a little longer than Soros had imagined it would.
On September 17th, 1992, the long awaited verdict came down on http://www.georgesoros.com/essays/. The British pound was devalued, and Soros and his hedge fund won the bet.
There is more to the story of how George Soros got so much money out of this single bet. The hedge fund’s value increased from $15 billion to $19 billion. The hedge fund further increased to $22 billion before they finally got their winnings. Hedge funds work in a very complicated fashion, but Soros and his fellow hedge fund owners took home around $1.4 billion. Each.
The rest of the reasons Soros has become the billionaire we know him as today are given in the book Priceonomics, but the Black Wednesday win gave him a good head start.