Scott Bessent Helped 'Break' The Bank of England, Let See What He Can do For Us As TreaSecry

Scott Bessent, President-elect Donald J. Trump’s choice for Treasury secretary, has spent his career at hedge funds, including two stints running his own firm.Credit...Stefani Reynolds/Bloomberg

 

By Maureen Farrell

 

Three decades before he was tapped to lead the Treasury Department, Scott Bessent was asked to help break another country’s financial system.

Then 29 years old, Mr. Bessent, working for the financier George Soros, helped “break” the Bank of England with crushing trades against the British pound. He was on a small team at Mr. Soros’s investment firm that, in 1992, amassed a $10 billion bet that the pound was overvalued.

Though the British government tried to support the currency, it wasn’t able to withstand the pressure, and the pound plunged in value. Mr. Soros’s fund earned more than $1 billion, along with credit (and infamy) for orchestrating one of Wall Street’s most audacious trades.

When President-elect Donald J. Trump announced his selection of Mr. Bessent as Treasury secretary last week, there was no mention of the connection to Mr. Soros. But it was Mr. Bessent’s experience at Mr. Soros’s fund — including another high-profile bet, against the Japanese yen — that helped define his career, and that his former colleagues and other associates see as a crucial credential. 

Mr. Bessent “could see the vulnerabilities in a way that most other people in the financial markets didn’t see,” said David Smick, an adviser to Mr. Soros at the time of the bet against the pound.

Mr. Bessent, 62, has spent nearly four decades as a trader or chief investment officer at hedge funds, including two stints running his own firm.

But he has also recently fallen out of prominence on Wall Street. His most recent hedge fund, Key Square Capital, launched to much fanfare in 2016, garnering $4.5 billion in investor money, including $2 billion from Mr. Soros, but manages much less now. Another fund he ran in the early 2000s had a similarly unremarkable performance. In interviews, he said he had started off with the wrong investing strategy.

Mr. Bessent is a relative latecomer to Mr. Trump’s inner circle; though he was friends with the president-elect’s family for decades, he reconnected with Mr. Trump only last year.

In interviews, Mr. Bessent’s former colleagues and associates praised his deep knowledge of history, financial markets and economic disasters, and said it would give him a clear edge in guiding the Treasury Department — which is charged with managing the U.S. economy and the government’s fiscal health. That includes issuing debt to fund government operations, pushing Mr. Trump’s tax cuts through Congress and leading economic negotiations with China and other global superpowers. 

He will also have to wrestle with how Mr. Trump’s plans for tariffs will affect the economy, the dollar and the deficit. On Monday, Mr. Trump threatened to raise tariffs on imports from China and impose new ones on Canada and Mexico.

Mr. Bessent’s former colleagues said they didn’t see him as a Trump loyalist, but he has been publicly supportive of the president-elect’s plans. In an essay published by Fox News this month, he wrote that economists had misunderstood tariffs, citing their role in raising revenue for the Treasury, protecting domestic industries and serving as “a negotiating tool with our trading partners.”

 

Kieran Cavanna, a hedge fund manager who worked under Mr. Bessent from 2013 to 2015 at Mr. Soros’s firm, said Mr. Bessent was “so good at figuring out ‘the butterfly effect.’” For example, Mr. Cavanna said, something going on in China could affect agriculture or steel in the United States or the price of Treasuries.

Still, people around Mr. Bessent wondered how his experience would translate to the Treasury Department. With more than 100,000 employees, the agency would be a drastic change in scope and size from anything that Mr. Bessent had managed in the past.

Mr. Bessent was known to spend more time diving into financial data, books and periodicals than actively managing or holding meetings with employees. He often blocked out Fridays for reading, the people who worked with him said, and many former colleagues hailed his one-on-one mentorship. 

At the Treasury Department, he would be operating in a different world — one where he’d have to handle the politics as well as the policy.

“Whether he can persuade the president of the United States or the Senate is different than seeing what to do,” said Robert Johnson, who was a colleague of Mr. Bessent’s at the time of the pound devaluation.

At Soros Fund Management, the firm’s current name, where Mr. Bessent served as chief investment officer from 2011 to 2015, he helped oversee about 320 employees, including 120 investment professionals. That has been his largest managerial responsibility to date.

 

Mr. Bessent is Mr. Trump’s second Treasury secretary pick to have worked under Mr. Soros, despite the extreme ideological differences between the liberal philanthropist and the president-elect. Steven Mnuchin, who served in the first Trump administration, worked for Mr. Soros’s fund briefly in the early 2000s, but didn’t overlap with Mr. Bessent.

 

Working for Soros

Mr. Bessent started his career in finance after graduating in 1984 from Yale, where he later taught several economics and investment courses. He worked at the investment bank Brown Brothers Harriman and helped manage money for a Saudi family before joining Mr. Soros’s firm in 1991. 

Mr. Soros’s Quantum Fund sent Mr. Bessent to London, where he immersed himself in housing data. Few British citizens, he discovered, held fixed-rate mortgages. If the Bank of England raised interest rates, he surmised, it would directly raise the cost on citizens while the economy was in the middle of a recession.

At the time, the British pound, or sterling, was kept within a range of Germany’s currency — under an agreement with most of Europe’s major economies aimed at minimizing foreign-exchange volatility. To do that, the Bank of England would buy or sell sterling if it began to move out of the range, the way China does today to keep its currency stable.

When Mr. Soros and his chief investment officer at the time, Stanley Druckenmiller, started considering betting against the pound, Mr. Bessent’s understanding of the British economy gave them the confidence to take on the Bank of England. One way a central bank can fight a drop in the currency is by raising interest rates, but the floating-rate mortgages made that a problem for the Bank of England.

“He had a feel in his fingertips for the flaws in the British financial system,” Mr. Smick said.

At the time, it was unthinkable that private investors would have the resources to upend one of the world’s oldest and largest central banks. But Mr. Soros insisted that they put as much as $15 billion on the bet (though ultimately they needed only $10 billion). 

“We could push the bank against the wall,” Mr. Bessent later told the author Sebastian Mallaby in the book “More Money Than God.”

The Soros team netted more than $1 billion in profits from that trade over a matter of weeks.

That win wasn’t without costs: The whole affair cost British taxpayers billions of dollars and led to election losses for the Conservative Party, after which Prime Minister John Major stepped down.

In 2000, Mr. Bessent left Mr. Soros to start his own hedge fund, Bessent Capital. The fund, which at first focused on trading stocks, had mixed results. By 2005, he tried out a brief retirement, gave investors back their money and shut down the fund.

Betting on Shinzo Abe

Mr. Bessent returned to Mr. Soros’s firm in 2011, after a few years at another firm, and began studying what would become a second career-defining trade. In 2012, he met with an adviser to Shinzo Abe, who would soon become Japan’s prime minister for a second time.

The aide told him of Mr. Abe’s plans to bring Japan out of a decades-long deflationary slump — an effort that would come to be known as “Abenomics.” Should Mr. Abe succeed, the Japanese yen would weaken and stocks in the country would rise, Mr. Bessent reasoned. 

A giant bet against the yen paid off, netting the fund roughly $1 billion in profits in just a few months, The Wall Street Journal reported in 2013.

With Mr. Bessent at the helm, Mr. Soros’s firm generated returns in excess of 20 percent most years, former colleagues said. But he also was known to clash with Mr. Soros at times.

“George likes it when you argue with him if you’re right, which is why I think I did well there,” Mr. Bessent said in an interview for the book “Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets.”

While some of his former colleagues say it was no secret that he was more conservative than Mr. Soros, a prominent donor to Democrats, they described him as apolitical in the workplace.

But Mr. Bessent’s 2015 announcement that he would leave Soros Fund Management came suddenly, according to five former employees, stunning colleagues — many of whom were directly working on trades with him at the time. (He stayed until the end of 2015.) Mr. Bessent had grown frustrated with working under Mr. Soros and his son Robert, who then served as the firm’s president, and was ready to start his own fund again, two of the people said. 

A representative for Mr. Soros did not respond to messages seeking comment.

Mr. Soros gave Mr. Bessent $2 billion to start Key Square, and the two men spoke only a few times after that, two people said. Two years later, in 2018, Mr. Soros took his money back.

Key Square opened for business with the largest-ever pool of funds, but its performance was lackluster. Data from one of the fund’s investors show that it lost money or broke even between 2018 and 2021, despite a record-breaking run for stock markets globally. It shrank partly because it spun off one fund into a new business, and it also has other ancillary funds and business lines.

Reuters earlier reported some performance details from the fund.

Now Mr. Bessent is set to have another fresh start. While the Treasury secretary doesn’t have direct control over monetary policy, which is under the purview of the Federal Reserve, Mr. Bessent has spoken out repeatedly about the state of the U.S. dollar — a topic he has been studying since his time under Mr. Soros. Mr. Trump, in announcing the pick, said he wanted help “maintaining the U.S. dollar as the reserve currency of the world.”

“What the world needs right now in a period of transition is someone who understands all the tenuous ramifications and side effects of what policies you adopt,” said Mr. Johnson, Mr. Bessent’s former colleague, who is now the president of the nonprofit Institute for New Economic Thinking. “I think that Scott is one of the few people who is both intellectually smart and experienced enough that he can sit in the cockpit of that challenge.”

Rob Copeland contributed reporting.