Hedge fund giant Tiger Global Management has lost nearly half its assets in 2022. But it’s not pulling back.
On the contrary, it made 16 investments in private tech startups in April, per Crunchbase. That was enough to tie for #1 most active investor in the United States.
This could be a huge mistake.
Many investors will probably try to pull their money from Tiger after the huge losses. What’s more, brokers could issue margin calls due to the massive losses.
The investments in private companies that Tiger is making are illiquid. It cannot get that money back to meet redemption requests and margin calls.
These investments are huge. Last year, Tiger’s median investment size in a startup was $114 million.
So Tiger may have plowed as much as $2 billion into opaque, illiquid company shares. In a month.
That is a very significant sum for a fund that, after its massive losses this year, is down to about $20 billion in assets under management. Tiger started 2022 with about $35 billion in assets.
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If Tiger finds itself unprepared for redemption requests from investors, expect them to gate their fund. This common hedge fund tactic limits withdrawals or prohibits them altogether until markets stabilize.
And that could be a very long time. Any investors who wish to redeem their Tiger investment should consider doing it sooner rather than later, before a gate provision is triggered.
The more dangerous scenario for Tiger is large margin calls from brokers. If Tiger is faced with dwindling liquid assets (its publicly traded stocks) and lots of illiquid assets (its private tech startup shares), Tiger could be forced into a fire sale.
In that scenario, Tiger would have to sell desperately to meet margin calls, taking whatever price is available. The whole market knows Tiger is long growth tech stocks, so it will short those stocks.
This could force Tiger into even more desperate selling until it goes bankrupt.
There’s no telling if Tiger will implode or manage to right itself. But I strongly urge the fund’s managers to avoid illiquid investments at this time.
What do you think will happen to Tiger? And which hedge funds do you think are next for big losses in this tough market?
Leave a comment at the bottom and let me know.
Have a wonderful weekend everyone! 👋
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Photo: Tiger Global CEO Chase Coleman
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