‘Brutal’ promoting in speculative tech shares knocks Tiger Cub hedge funds

A number of hedge funds spawned by Julian Robertson’s funding agency Tiger Administration have sustained steep losses in latest months, after huge falls for US tech shares wherein lots of them held stakes.

A bunch of so-called “Tiger Cubs” together with Chase Coleman’s $90bn-in-assets Tiger World, Philippe Laffont’s Coatue Administration and Glen Kacher’s Gentle Avenue Capital have backed the same cohort of corporations together with Peloton Interactive, Zoom and Block, in response to evaluation by the Monetary Instances.

Such companies had been huge winners within the early levels of the pandemic. However some, together with Peloton, have fallen sharply from their highs as buyers query their enchantment in a post-lockdown world. Some extra established tech names in style among the many cubs, equivalent to Amazon and Microsoft, have additionally fallen not too long ago.

Expectations that rates of interest will rise this yr — notably within the US — have additionally dealt a blow to extra speculative corporations whose giant anticipated future revenue streams are flattered by low borrowing prices.

The Tiger Cubs “had been shopping for progress immediately and tomorrow however the earnings weren’t there in a number of the stuff they had been shopping for”, mentioned Dixon Boardman, chief govt of Optima Asset Administration, who has beforehand labored with Robertson. “For ‘jam tomorrow [companies]’, it’s been a depraved, depraved punishment all spherical.”

Share falls throughout the expertise sector have caught out plenty of the cubs, for whom as soon as high-flying efficiency data tipped into reverse on the finish of final yr and into 2022.

“It’s been brutal,” mentioned one hedge fund business insider. There had been “huge quantities of ache”, the individual mentioned.

Tiger World misplaced 7.5 per cent final yr and an additional 14.8 per cent in January, whereas Steve Mandel’s Lone Pine, one other cub, fell 7 per cent final yr and an additional 10 per cent in January, say individuals who had seen the numbers. Gentle Avenue fell 26 per cent final yr and 15 per cent in January

The cubs, a few of whom rank among the many top-performing hedge funds of all time, have at instances drawn criticism for important overlap of their portfolio positions.

The FT’s evaluation of regulatory filings recognized 15 tech shares wherein a bunch of funds tracing their origins again to Robertson’s Tiger Administration have typically held positions over the previous yr.

One of the crucial painful holdings has been Peloton. Tiger World, Coatue, Gentle Avenue, D1 and Viking all held positions throughout 2021, with the latter two shopping for into the inventory early that yr. Tiger World held greater than $1bn mid-year, when the inventory was buying and selling round $124.

Peloton’s share worth climbed from $28 on the finish of 2019 to peak at greater than $170 in early 2021, as buyers guess that the maker of related health bikes and treadmills would prosper throughout lockdowns.

But it surely has since collapsed to lower than $25, hit by product remembers and missed targets. The agency’s popularity additionally suffered when a personality in TV present Billions suffered a coronary heart assault utilizing a Peloton bike, and final yr when a central character in Intercourse and the Metropolis died after utilizing the tools. D1 and Gentle Avenue each bought their positions throughout 2021, whereas Tiger World elevated its holding.

Some hedge funds have even been capable of revenue from taking the alternative guess to the cubs. Odey Asset Administration’s James Hanbury, as an illustration, shorted Peloton till late final yr — wagering its share worth would fall — in response to paperwork seen by the FT.

“It’s superb they missed it,” mentioned one business insider whose fund made cash betting towards Peloton, referring to the Tiger Cubs’ positions within the inventory. “It wasn’t like these points had been hidden,” the individual added.

Video conferencing agency Zoom was one other early lockdown winner that has since fallen again sharply. Coatue, Tiger World and Gentle Avenue had been all backers of the inventory, though Gentle Avenue bought out within the fourth quarter of final yr. The shares, which peaked at greater than $580 in late 2020, have tumbled from $337 in the beginning of final yr to about $110 as gross sales have slowed.

‘For those who purchase one you purchase all of them’

Robertson’s Tiger Administration, which he established in 1980 and closed down in 2000, was one of many early pioneers of the hedge fund business. Additionally it is often called probably the most influential funding corporations of all time.

Tiger Administration has produced quite a few cubs and so-called “grandcubs”, equivalent to D1, which got here out of Tiger cub Viking. Near 200 corporations can hint their roots again to Tiger.

A quantity have adopted comparable investing types, specializing in expertise corporations with robust market positions in areas with excessive limitations to entry, even when they commerce on valuations which may seem excessive on conventional metrics.

Coatue’s Laffont tweeted final yr: “Many instances I can’t perceive new applied sciences but when the founder is so engaged that it feels ‘magical’ then I attempt to make investments anyway. As soon as cash is on the road, the educational all the time occurs sooner!”

Tiger World’s Coleman wrote final yr, in an investor letter seen by the FT, that the staff was “grateful to have begun our funding careers at a time when the web period was simply starting”. He added that considered one of his investing errors had been to promote shares together with Peloton and Netflix too early, solely to purchase them again in a while a lot greater valuations.

Jim Neumann, chief funding officer at Sussex Companions, which advises shoppers on hedge fund investments, mentioned the cubs ended up holding a number of the identical shares as a result of they’ve been “pushed to these names with upward momentum”, whereas their giant asset sizes can imply they plump for bigger shares.

“For those who purchase one you purchase all of them,” mentioned one hedge fund investor, referring to investing within the cubs’ funds.

Tiger World, Coatue, Viking, Maverick, Lone Pine, D1 and Gentle Avenue declined to remark.

Whereas a number of the cubs have in the reduction of positions throughout the market reversals, it seems that a quantity are sticking with their investing type. Each Tiger and D1 wrote to buyers late final yr, say individuals acquainted with the transfer, giving them the prospect to speculate extra money into autos that are usually troublesome to entry.

Final month, Tiger World’s Coleman and Scott Shleifer held a name for buyers, reiterating their conviction of their course of and highlighting shopping for alternatives available in the market. In addition to Peloton, the fund has elevated positions in Block and Zoom throughout the fourth quarter.

Whereas efficiency has disillusioned in latest months, many buyers nonetheless again the cubs to thrive once more.

“The generalised tech commerce has a protracted solution to go,” mentioned Michael Storm Jeske, who beforehand labored at Tiger cub Shumway Capital and now runs analysis agency III Macro. “They usually [the cubs] are usually the masters of the tech commerce.”

Extra reporting by Miles Kruppa