Massive hedge fund Tiger Global Management is down nearly 50% so far this year, according to a new report from the Financial Times:
Tiger Global’s flagship hedge fund was dealt a fresh blow in April and is down more than 40 per cent this year, in the latest sign of how star investors who rode the big rally in tech stocks have been wrongfooted by a sharp pullback.
Tiger Global’s hedge fund lost 15.2 per cent in April, according to a person familiar with the matter, taking it down 43.7 per cent in the first four months of 2022. This year’s losses and a 7 per cent reversal in 2021 mean that the Tiger Global hedge fund’s gain of 48 per cent in 2020 has been completely erased.
The group’s long-only fund lost 24.9 per cent in April and is down 51.7 per cent in 2022, the person said. Across the two funds, the firm managed about $35bn in public equities at the end of 2021.
The losses are some of the biggest in the history of hedge funds:
Back of the envelope calculations based on the reported $35bn size of Tiger’s overall public equities book at the end of last year indicate that it has probably suffered a nominal loss of at least $15bn in 2022.
Given that there were 82 trading days in January-April, this works out to be a loss of roughly $183mn every day that markets were open this year. Or $28.1mn every hour that US markets were open.
Tiger has been torched by plummeting tech stocks. Its short positions have failed to make up the difference.
I predicted a meltdown at Tiger Global on this blog on February 7th. It took less than 3 months.
Two things happen when a hedge fund drops by half: people assume it can go down all the way, and top employees start leaving.
After all, they could soon be out of a job anyway. Even if not, hedge funds can’t charge that juicy 20% performance fee until they make back all their losses.
This means no big bonuses for a long, long time.
Tiger’s problems are compounded by major stakes in many tech startups. The hedge fund roiled the venture capital world by putting huge sums at eyewatering prices into late-stage companies in the last few years.
As an angel investor, I’ve had many deals that Tiger is in cross my desk. I can confirm they tend to invest huge sums (often over $100 million) in startups at staggering valuations.
Tiger is also well known for doing little if any due diligence on these companies. It’s likely that Tiger’s fast-and-loose approach could have led it to invest in many weak or even fraudulent companies.
Tiger’s losses may be much worse than 50% when you account for its startup investments. Valuations of late stage companies like those Tiger invests in are down over 20% from last year.
It’s easy to hide those losses because unlike publicly traded stocks, the price of these privately held shares seldom changes. But sooner or later, the chickens will come home to roost.
Money locked up in startup investments could also cause a liquidity crisis for Tiger. If investors are spooked by losses and ask for their money back, Tiger can’t get back money it invested in startups.
This illiquidity also makes Tiger vulnerable to margin calls. After its huge losses, brokers may demand more collateral.
With big losses in public markets and the rest of its money locked up in private ones, Tiger may not have the cash.
So what’s next for Tiger?
Melvin Capital recently tried to remove it’s “high water mark” so it could start charging performance fees again. Investors balked, and now the fund may shut down.
Tiger, reeling from losses and with no fat performance fees in sight, could shut down too. Or perhaps it will be rescued by a sudden upturn in tech stocks.
But until then, Tiger CEO Chase Coleman must be dealing with some very angry investors.
What do you think will happen to Tiger and other hedge funds suffering from huge losses? Leave a comment at the bottom and let me know.
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Photo: Tiger Global CEO Chase Coleman
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