Several hedge funds spawned by Julian Robertson’s investment firm Tiger Management have sustained steep losses in recent months, after big falls for US tech stocks in which many of them held stakes.
A group of so-called “Tiger Cubs” including Chase Coleman’s $ 90bn-in-assets Tiger Global, Philippe Laffont’s Coatue Management and Glen Kacher’s Light Street Capital have backed a similar cohort of companies including Peloton Interactive, Zoom and Block, according to analysis by the Financial Times.
Such businesses were big winners in the early stages of the pandemic. But some, including Peloton, have fallen sharply from their highs as investors question their appeal in a post-lockdown world. Some more established tech names popular among the cubs, such as Amazon and Microsoft, have also fallen recently.
Expectations that interest rates will rise this year – particularly in the US – have also dealt a blow to more speculative companies whose large expected future profit streams are flattered by low borrowing costs.
The Tiger Cubs “were buying growth today and tomorrow but the earnings weren’t there in some of the stuff they were buying,” said Dixon Boardman, chief executive of Optima Asset Management, who has previously worked with Robertson. “For ‘jam tomorrow [companies]’, it’s been a wicked, wicked punishment all round. “
Share falls across the technology sector have caught out a number of the cubs, for whom once high-flying performance records tipped into reverse at the end of last year and into 2022.
“It’s been brutal,” said one hedge fund industry insider. There had been “massive amounts of pain,” the person said.
Tiger Global lost 7.5 per cent last year and a further 14.8 per cent in January, while Steve Mandel’s Lone Pine, another cub, fell 7 per cent last year and a further 10 per cent in January, say people who had seen the numbers. Light Street fell 26 per cent last year and 15 per cent in January
The cubs, some of whom rank among the top-performing hedge funds of all time, have at times drawn criticism for significant overlap in their portfolio positions.
The FT’s analysis of regulatory filings identified 15 tech stocks in which a group of funds tracing their origins back to Robertson’s Tiger Management have often held positions over the past year.
One of the most painful holdings has been Peloton. Tiger Global, Coatue, Light Street, D1 and Viking all held positions during 2021, with the latter two buying into the stock early that year. Tiger Global held more than $ 1bn mid-year, when the stock was trading around $ 124.
Peloton’s share price climbed from $ 28 at the end of 2019 to peak at more than $ 170 in early 2021, as investors bet that the maker of connected fitness bikes and treadmills would prosper during lockdowns.
But it has since collapsed to less than $ 25, hit by product recalls and missed targets. The firm’s reputation also suffered when a character in the TV show Billions suffered a heart attack using a Peloton bike, and last year when a central character in Sex and the City died after using the equipment. D1 and Light Street both sold their positions during 2021, while Tiger Global increased its holding.
Some hedge funds have even been able to profit from taking the opposite bet to the cubs. Odey Asset Management’s James Hanbury, for instance, shorted Peloton until late last year – wagering its share price would fall – according to documents seen by the FT.
“It’s amazing they missed it,” said one industry insider whose fund made money betting against Peloton, referring to the Tiger Cubs’ positions in the stock. “It wasn’t like these issues were hidden,” the person added.
Video conferencing firm Zoom was another early lockdown winner that has since fallen back sharply. Coatue, Tiger Global and Light Street were all backers of the stock, although Light Street sold out in the fourth quarter of last year. The shares, which peaked at more than $ 580 in late 2020, have tumbled from $ 337 at the start of last year to about $ 110 as sales have slowed.
‘If you buy one you buy them all’
Robertson’s Tiger Management, which he established in 1980 and closed down in 2000, was one of the early pioneers of the hedge fund industry. It is also known as one of the most influential investment firms of all time.
Tiger Management has produced numerous cubs and so-called “grandcubs”, such as D1, which came out of Tiger cub Viking. Close to 200 firms can trace their roots back to Tiger.
A number have adopted similar investing styles, focusing on technology companies with strong market positions in areas with high barriers to entry, even if they trade on valuations that might appear high on traditional metrics.
Coatue’s Laffont tweeted last year: “Many times I can’t understand new technologies but if the founder is so engaged that it feels ‘magical’ then I try to invest anyway. Once money is on the line, learning always happens faster! ”
Tiger Global’s Coleman wrote last year, in an investor letter seen by the FT, that the team was “grateful to have fled our investment careers at a time when the internet era was just beginning”. He added that one of his investing mistakes had been to sell stocks including Peloton and Netflix too early, only to buy them back later on much higher valuations.
Jim Neumann, chief investment officer at Sussex Partners, which advises clients on hedge fund investments, said the cubs ended up holding some of the same stocks because they have been “pushed to those names with upward momentum”, while their large asset sizes can mean they plump for larger stocks.
“If you buy one you buy them all,” said one hedge fund investor, referring to investing in the cubs’ funds.
FT Asset Management newsletter
Our weekly inside story on the movers and shakers behind a multitrillion-dollar industry. Sign up here
Tiger Global, Coatue, Viking, Maverick, Lone Pine, D1 and Light Street declined to comment.
While some of the cubs have cut back positions during the market reversals, it appears that a number are sticking with their investing style. Both Tiger and D1 wrote to investors late last year, say people familiar with the move, giving them the chance to invest more money into vehicles which are normally difficult to access.
Last month, Tiger Global’s Coleman and Scott Shleifer held a call for investors, reiterating their conviction in their process and highlighting buying opportunities in the market. As well as Peloton, the fund has increased positions in Block and Zoom during the fourth quarter.
While performance has disappointed in recent months, many investors still back the cubs to thrive again.
“The generalized tech trade has a long way to go,” said Michael Storm Jeske, who previously worked at Tiger cub Shumway Capital and now runs research firm III Macro. “And they [the cubs] are generally the masters of the tech trade. ”
Additional reporting by Miles Krupp