In a brutal year for hedge funds, few have suffered more than Light Street Capital. The fund lost 54% in 2022, over $1 billion.
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From a report out last night in Bloomberg:
Light Street Capital Management’s hedge fund tumbled 54% in 2022, according to a person familiar with the matter, one of the industry’s worst performances last year.
That drop rivals the 56% decline for Tiger Global Management, and is steeper than Lone Pine Capital’s 36% loss and Whale Rock Capital Management’s 45% slide.
Light Street was the classic crossover hedge fund. It made big bets on technology companies, both public and private.
Many of those bets were at eyewatering valuations. Tech was crushed in 2022, pushing many such funds to the brink.
What strikes me is how simple Light Street’s strategy was. Its biggest holdings were a who’s who of growth stocks:
Anyone could’ve bought Tesla and hoped for the best. Why should investors pay Light Street 2% of assets and 20% of gains to do what they could do themselves?
Light Street’s 54% loss is abysmal even compared to benchmarks. The S&P 500 lost 18% last year, while the NASDAQ lost 33%.
Investors could’ve bought index funds and avoided hundreds of millions in losses, not to mention outrageous fees.
No wonder the California Public Employees Retirement System (Calpers), one of the most astute investors in the market, hasn’t invested in hedge funds since 2014.
The future for Light Street is bleak. It cannot charge a performance fee again until it more than doubles its fund.
That’s extremely hard to do. And without those juicy performance fees, the best traders will leave.
This is the kind of spiral that took down Melvin Capital. Light Street could be next.
I’m a huge bull on technology. But no stock is a good buy at any price.
What do you think the future holds for hedge funds? Leave a comment at the bottom and let me know!
More on markets:
Tiger Global Losing $185 Million a Day
As Fed Rates Peak, Are Markets Ready to Take Off?
Is SBF Laundering Money As We Speak?
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Photo: Glen Kacher, Founder of Light Street Capital
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