The mauling of Tiger Global

Early last year Chase Coleman wrote to investors to celebrate the 20-year record of Tiger Global, one of the biggest winners from a technology bull market that had run since the financial crisis.

Now the best-known of the so-called Tiger cub firms has become the highest-profile hedge fund casualty of the tech stock hammering as interest rates have started to rise.

Tiger’s hedge fund has lost about $ 17bn this year, the FT reported last week, erasing about two-thirds of the dollar gains made for investors since its 2001 launch. Coupled with losses suffered late last year, that puts the fund well below the point at which it charges investors its lucrative 20 per cent performance fees.

“A fall of this magnitude is rare” in the hedge fund industry, said Amin Rajan, chief executive of consultancy Create Research. “Getting back to its glory days will be an Everest of a task, if the rate-hiking cycle is prolonged and severe.”

The fund disclosed on Monday it had slashed or dumped its holdings in prominent tech groups such as Netflix, Airbnb and Peloton. The value of its public stock positions fell from $ 46bn at the end of last year to just over $ 26bn at the end of the first quarter, reflecting both the divestments and plunges in the value of its remaining investments.

While Tiger declined to comment on why it reduced its positions, two people familiar with the fund said the move was likely to have been driven by an attempt to limit further losses, a common move by hedge funds in recent months. Tiger’s long investor lockups mean it does not face immediate pressure from redemptions.

The tech sector and its growth prospects have long been a focus for Coleman, a softly spoken 46-year-old who shuns the limelight.

Recruited in the late 1990s to analyze tech companies by hedge fund pioneer Julian Robertson’s Tiger Management, Coleman was quickly identified as one of the firm’s brightest prospects by Aaron Stern, a psychoanalyst hired to help spot young talent, and eventually became a partner.

Even when Tiger Management decided to shut its hedge fund in 2000 following poor performance, Coleman stayed on to run his mentor’s own money. When he launched his own firm in 2001 – initially taking the name Tiger Technology before later rebranding as Tiger Global – it was backed by both Robertson and Stern.

Launched during the dotcom bust, Coleman’s firm began to find fast-growing internet companies in China whose stocks had collapsed at a time when the Asian country was largely overlooked by western tech investors.

Coleman inherited from Robertson a focus on factors such as a company’s industry position or barriers to entry, with valuations an important but often secondary consideration, helping him invest early in companies that would later be big winners.

Getting some positions wrong was all part of the process. Even in his best years he would expect to lose on at least one in three bets, according to investor documentation – but the gains from the winners more than made up for it.

Bigger errors did occur. Tiger turned down an early chance to buy 4 per cent of ecommerce group Alibaba because it deemed the valuation too high. Coleman also rued selling out too early from stocks including Facebook, Peloton and Netflix, only to later buy back in at higher prices.

But when the pandemic hit in early 2020, Tiger was perfectly positioned. US interest rates were cut to zero, elevating the market multiples of stocks with little in the way of earnings but strong growth prospects. The value of Tiger’s holdings in companies such as Peloton and Zoom rocketed.

The fund finished that year up 48 per cent with about $ 10.4bn of gains, placing Coleman 14th in the rankings of the greatest hedge fund managers of all time as measured by dollar gains for investors, according to LCH Investments. Assets across its hedge fund and private equity businesses reached $ 90bn.

By the time he wrote to investors in February last year, Coleman’s hedge fund had made an annualized 21 per cent after fees over its first 20 years, one of the industry’s most enviable track records.

“Tiger Global and its leadership were definitely highly regarded and the track record has historically been exceptional,” said Patrick Ghali, managing partner at Sussex Partners, which advises clients on hedge funds.

But when investors began to fret last autumn that central banks would raise interest rates rapidly to combat inflation, Coleman found his investing style suddenly out of favor. Stocks with projected cash flows far in the future looked less appealing compared with holding cash. The fund ended the year down 7 per cent.

Worse was to come. The fund lost 43.7 per cent in the first four months of this year, against a 21 per cent drop in the Nasdaq Composite and an average 12.1 per cent loss among equity hedge funds trading tech, according to data group HFR.

“Markets have not been co-operative given the macroeconomic backdrop but we do not believe in excuses and so will not offer any,” Tiger wrote to investors this month.

Tiger is far from the only hedge fund manager suffering from the market sell-off. Fellow Tiger cub Lone Pine’s Cypress hedge fund has lost 27 per cent this year and its Cascade long-only fund is down 32.5 per cent. Skye Global, set up by former Third Point analyst Jamie Sterne, is down about 24 per cent having made large double-digit gains in each of the past five years.

“If you owned growth stocks this year. . . you got your face ripped off, ”Brad Gerstner, founder of tech-focused fund Altimeter, tweeted this month, adding that his firm di lui“ didn’t hedge enough ”and“ moved too slow ”.

As with some of its peers, there are also questions surrounding the valuation of Tiger’s private investment business.

With no obvious market price, private assets in the sector are often marked based on the last fundraising round, and some funds have marked down private assets less than public equities.

D1 Capital made money on private companies last year but lost money on public stocks while Whale Rock’s public portfolio has fallen more this year than its private counterpart, according to people with knowledge of the funds.

Tiger’s Crossover fund, which owns both public and private assets, has not performed as badly as the hedge fund and is down 29.7 per cent this year. Tiger’s private portfolio was marked down 9 per cent in the first quarter, according to one person familiar with the fund.

Coleman – known for giving little away in conversations, often preferring to answer one question with another – faces a challenge if he is to recoup losses and start charging higher performance fees again. Even if a manager believes they can recover, “the fee incentives don’t allow you to stay the course”, said Rob Arnott, founder of Research Affiliates.

Coleman and Scott Shleifer, who looks after Tiger’s private investment funds, have been upbeat in discussions with investors, say people familiar with the conversations, arguing that conditions would eventually change and the tech sector’s long-term growth remained intact.

We “know we will look back on this as one point in time on a long journey”, the firm told investors this month.

Some are betting the fund can recover and that such falls are to be expected. “Tiger is long tech, that is their job,” said one investor. “If you don’t want to be long tech, don’t own Tiger.”

Tiger has time to turn its fortunes round. Its hedge fund does not allow investors to withdraw money for two years, after which they can withdraw a quarter of their cash per year, meaning it takes six years to fully redeem, according to a person familiar with the fund.

“I think Chase is one of the hardest-working, most intense, most competitive people I’ve ever come across,” said Dixon Boardman, chief executive of Optima Asset Management who invests in Tiger and also previously worked with Robertson.

“I have full confidence that he will come back. I just don’t know how long it is going to take. “

Additional reporting by Harriet Agnew, Adrienne Klasa and Ortenca Aliaj

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