Tag Archives: Hedge funds

Shadowy Hedge Fund Cash Bankrolls Fight Against Regulation

Hedge funds are going all out to stop the SEC from implementing new disclosure rules. Now they have some help from an academic group whose finances are shrouded in secrecy.

From a report that broke yesterday in Institutional Investor:

…hedge funds aren’t fighting the SEC alone: A new organization, which Institutional Investor has learned has at least one hedge fund backer, has enlisted dozens of academics to argue against the proposals, creating something of a firestorm of criticism.

Wonky academic comments on proposed SEC rule changes typically fly under the radar. But [UC Berkeley law and finance professor Frank] Partnoy made them his mission. Now his work — in comment letters signed by himself, [Robert] Bishop, and other academics — is taking some heat. In part, that’s because the financing of his institute, which pays Partnoy and Bishop for their letter writing, has been shrouded in secrecy.

The International Institute of Law and Finance refuses to disclose its backers. But at least one major hedge fund manager, Bill Ackman of Pershing Square Capital Management, is bankrolling the effort per Institutional Investor.


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Even the group’s chairman is a hedge fund employee:

The chairman of the institute’s board is Stephen Fraidin, a corporate attorney and partner at Cadwalader who has also long worked for Pershing Square.

Given the institute’s lack of financial disclosures, we can only guess who else may be backing its efforts. But we do know that numerous hedge funds, including Citadel, have met with the SEC to oppose new regulations.

So what exactly are these regulations that hedge funds and their friends in academia so passionately oppose?

One requires investors who buy over 5% of a company’s stock to disclose the position sooner. Another requires similar disclosure if the 5% position is in swaps.

Swaps can be used to hide both long and short positions in a stock. They can also lead to sudden, massive losses, as was the case with Archegos Capital Management last year.

Other shareholders should know when the stock they hold is being accumulated by a major investor. Employees too need to know about ownership changes that can affect their livelihood.

Better disclosures could even prevent another financial crisis. If banks know about a fund’s huge swaps positions, they may be unwilling to extend it more credit, which could prevent a huge hedge fund or bank failure.

But just because regulations are good for society as a whole doesn’t mean hedge funds won’t fight them with everything they’ve got. And since the message isn’t that persuasive coming from them, why not pay a few academics to deliver it for them?

Hedge funds are also finding some unlikely allies in Washington, including a Congressman with ties to hedge fund Elliott Management:

Rep. Ritchie Torres, a Democrat from New York’s South Bronx — one of the poorest districts in the nation — whose top donors include Elliott, has been circulating the letter [opposing regulation], according to an individual familiar with the effort. (Torres, whom OpenSecrets says is a top recipient of hedge fund cash in the current election cycle, did not return multiple requests for comment, nor did Elliott.)

Is hedge fund regulation really a top priority of Torres’ constituents in the South Bronx?

Big money has long since poisoned politics and now is doing the same with academia. We, as citizens and investors, need to stop fooling ourselves about who these institutions really represent.

Who else do you think is behind the fight against hedge fund regulations? Leave a comment at the bottom and let me know!

More on markets:

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

Hedge Fund Giant D1 Loses $7 Billion in 2022

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Hedge Fund Giant D1 Loses $7 Billion in 2022

Yet another massive crossover hedge fund is facing serious losses. New York-based D1 Capital Partners has lost approximately $7 billion this year.

From a Bloomberg report that broke yesterday:

…D1 has told investors who selected a 50-50 mix of public and private assets that the strategy lost 23% through May. The firm attributed most of the damage to public investments, which fell 44%. It marked down private assets only 8% — including 0.05% last month.

This 50-50 mix was the most common choice for D1 investors.

D1 still has about $17 billion in private equities and $7 billion in public stocks, implying losses of about $5.5 billion and $1.5 billion respectively. The firm’s total loss for 2022 alone appears to be about $7 billion.


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D1’s losses, large as they are, are probably severely understated.

It has marked down its private company stocks by only 8%. However, the Refinitiv Venture Capital Index is down 47% for the year.

If D1’s portfolio mirrors the broader markets, the real losses on this $17 billion pile of private company stocks could be billions more.

To make things even more interesting, D1 borrowed billions and poured it into illiquid private company shares. From Bloomberg:

Hedge funds were tallying gains on their hottest bet in years when Dan Sundheim reached an unusual deal with JPMorgan Chase & Co. to go even further.

With the bank’s help in August 2020, Sundheim’s D1 Capital Partners used its stakes in private companies as collateral for borrowing $2 billion that the firm could put toward yet more of those stakes, among other things. Last year that focus on private companies looked brilliant, as D1 updated its valuations and posted a whopping 70% gain in that part of its portfolio.

Now, the industry is bracing for a reckoning.

I invest in startups myself, but I would never borrow money to do so.

Borrowing money to invest in tech startups is completely reckless. These companies are volatile, speculative, and illiquid.

It’s telling that the best venture capital firms in the business, like Sequoia and Benchmark, don’t play these shell games to boost returns.

Losses for crossover hedge funds like D1 are so severe that some cannot even meet redemption requests from investors:

In the starkest sign yet of the strain on hedge funds, Tiger said last week that it couldn’t continue to fill redemptions the normal way because so much of its portfolio was invested in hard-to-sell stakes in private companies. As the firm saw losses and some redemptions in the first quarter, it exited 83 stocks. Now if investors want to pull money from Tiger’s hedge and long-only funds, a portion of the liquid assets will be sold, but private investments will be placed in a separate account to be cashed out later.

I expect a similar move at D1 soon.

This isn’t the first time D1 has gotten itself into trouble.

According to a report in The Wall Street Journal, it lost 30% of its public portfolio in January 2021. As meme stocks soared, D1 was badly burned by short positions.

The overall impression I have of D1 is of a reckless firm casting about in vain for a winning strategy. It rushed into venture capital with a risky and untested scheme, then lost a fortune betting against volatile meme stocks.

Were I an investor in the firm, I’d be asking for my money back. The question is: can you get it?

What do you think of D1’s losses? And who do you think is next?
Leave a comment at the bottom and let me know!

This is the last blog for this week. There will be no blog next week — I’m heading off for a vacation!

See you on Monday, June 20th. Have a great weekend! 👋

More on markets:

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Citadel Adds Millions to AMC Options Bet

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Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

The pain continued in May for Tiger Global Management. The hedge fund giant is losing money at a rate of over $130 million a day and most of its capital is gone.

From a Bloomberg report that broke this morning:

Losses at Tiger Global Management reached 52% this year, prompting the firm to cut management fees and create separate accounts for the illiquid wagers of customers who want to redeem. 

The firm’s hedge fund sank 14.2% last month, buffeted by losses in several stocks and substantial markdowns in its private assets, according to an investor letter seen by Bloomberg and a person with knowledge of the matter. 


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This comes after massive losses in April:

By April, the hedge fund’s 44% tumble, along with losses in its long-only and crossover funds, wiped out about $16 billion.

These figures put Tiger’s capital at the beginning of 2022 at around $36 billion. After April’s loss, a further 14% slide in May represents a $2.9 billion wipeout for the month.

May’s losses came to about $136 million per trading day. Every day.

As colossal as these losses are, they may be an underestimate of the true damage. Tiger has taken markdowns on its shares in private tech startups, but we have no way of knowing if those markdowns reflect reality.

Another large late stage investor, Fidelity, has taken only minor markdowns on its portfolio, including a 13% haircut on Stripe. Block, a similar fintech giant that happens to be publicly traded, is down 70% from its August high.

Tiger too may be engaging in this sort of wishful thinking.

If that wasn’t bad enough, Tiger may soon face attack from other hedge funds. It has allowed investors to pull out more money than usual, which will require huge stock sales.

Other funds are likely to short Tiger’s positions, knowing that Tiger has to sell regardless of price. This could make Tiger’s losses even worse.

So what’s next for Tiger? Their high-water mark means that until the fund recoups all its losses and a lot more, fees will be minimal.

Those fees pay the fat bonuses hedge funders are used to. Without them, many employees may jump ship.

Indeed, Tiger could shut down completely, daunted by the need to more than double their fund just to get back in the black. Melvin Capital Management recently closed after facing a long future with no juicy performance fees.

I expect to see Tiger’s losses grow as other funds attack its positions. However, a sudden, major run-up in tech stocks could save them at the last minute.

One thing I do know: I’m glad I don’t have any money in Tiger.

What do you think lies ahead for Tiger? And what hedge fund will be next?

Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Citadel Adds Millions to AMC Options Bet

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Credit Suisse May Need Up to $1 Billion After Huge Losses

Credit Suisse may soon raise over $1 billion in new capital after a string of huge losses last year. From a Reuters report this morning:

Credit Suisse is in the early stages of weighing options to bolster its capital after a string of losses has eroded its financial buffers, two people with knowledge of the matter told Reuters.

The size of the increase would be likely to exceed 1 billion Swiss francs ($1.04 billion), but this has not yet been determined, said one of the people, who declined to be named because the deliberations are still internal.

The cash injection would help Switzerland’s second-biggest bank to recover from billions of losses in 2021 and a series of costly legal headaches.


Credit Suisse lost $5.5 billion last year just in trades with failed hedge fund Archegos Capital Management. It has since closed the prime services business that serviced Archegos and other funds.


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Risk controls have been almost nonexistent at the Zurich-based bank. Big dealmakers have routinely overruled compliance staff, with predictable results.

In my view, Credit Suisse would not be seeking to raise capital in this bear market unless it badly needed it. Stocks are crashing, the IPO market is closed, and bond markets are volatile.

If the Reuters report is accurate, I suspect Credit Suisse is getting desperate.

If Credit Suisse is in a bind, investors are apt to drive a hard bargain. The terms of a financing may be punitive, if it happens at all.

Any new equity financing would also dilute existing shareholders, making their shares worth less. Those shareholders are already reeling from a 37% loss in the last year.

The best way for Credit Suisse to avoid scandals and massive losses in the future is to change its employees incentives. When a banker that brings in a big deal gets a huge bonus and a promotion regardless of how risky the deal is, other bankers take note.

Rather than compensating employees for individual success, Credit Suisse should take a page out of Silicon Valley’s playbook.

Tech companies incentivize employees to work together for the long term success of the business by granting equity. This equity often comes in the form of Restricted Stock Units (RSU’s) that vest over 4 years.

Employees only win if the business as a whole wins. And there’s no incentive to make a reckless deal for a short-term pay-off.

I’ll be closely following any Credit Suisse fundraise. But even billions more in fresh capital won’t change the bank’s dysfunctional culture.

Do you think Credit Suisse is in trouble? And what other financial institutions could be next?

Leave a comment at the bottom and let me know!

More on markets:

This Is Why Credit Suisse Keeps Getting Punched in the Face

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Citadel Adds Millions to AMC Options Bet

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Hedge Fund Ponzi Scheme Steals $39 Million from Investors

Another day, another hedge fund scandal. The SEC announced charges this week against a Detroit hedge fund for bilking investors of tens of millions of dollars.

From Financial Advisor magazine:

The Securities and Exchange Commission today announced fraud charges against Detroit-based EIA All Weather Alpha Fund Partners I LLC (EIA) and its sole owner, RIA Andrew M. Middlebrooks, for an alleged multiyear Ponzi scheme that the agency said included the misappropriation and loss of nearly $39 million in investor funds.


The commission said in its complaint that from at least mid-2017 to April 2022, EIA and Middlebrooks deceived investors in their hedge fund, the EIA All Weather Alpha Fund I LP, by making false and misleading statements that “wildly” misstated the fund’s performance and total assets. The SEC also said in the complaint that the fund and Middlebrooks provided falsified investor account statements, misrepresented that the fund had an auditor and created and disseminated a fake audit opinion to investors.


In addition to being a rotten trader, Middlebrooks had a taste for the finer things in life. He paid for them with investor money:

Middlebrooks also misappropriated investor funds for personal use, allegedly transferring at least $470,000 to his wife’s business, making more than $750,000 in transfers to his personal bank account and using $64,000 in investor money to pay for jewelry, the agency said.

It seems likely that his victims will lose their entire investment:

“Middlebrook’s losing trading strategy coupled with his misappropriation has resulted in near total loss of investor funds,” the SEC said.


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The hedge fund describes itself rather differently on its website:

We are active investors, not closet indexers, and we have structured an investment process and environment that enables us to be disciplined, to be patient and to exercise good judgment.

It turns out investors would have been far better off with that boring index fund. Indeed, they form the core of my portfolio.

The fund’s LinkedIn profile comes closer to telling the truth:

This intellectual framework allows the Portfolio Manager to manage the Fund unencumbered by emotions or inherent bias.

Emotions definitely didn’t stop Middlebrooks and his cronies from bilking unsuspecting investors.

I was able to find what appears to be the actual slide deck that Middlebrooks used to pitch investors. The scariest part about it is that the pitch seems fairly plausible, proposing a long/short strategy that combines value and momentum.

In addition to their thieving, it appears that EIA partners were paid well. Glassdoor records total compensation of $254,000.

I guess that wasn’t quite enough to cover their expensive tastes.

We see one case of shady behavior after another in the hedge fund world. The SEC and DOJ need to step up and start seriously scrutinizing these funds.

I’m as pro-free enterprise as anyone you’re likely to meet. But fraud doesn’t qualify.

As Memorial Day approaches for those of us in the United States, one of the more patriotic things we can do is to safeguard that free-enterprise system by purging its bad actors.

What do you think will be the next hedge fund to fall? Leave a comment at the bottom and let me know!

There will be no blog on Monday for the holiday. Have a great Memorial Day weekend everyone! 🥳🇺🇸

More on markets:

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

Citadel Adds Millions to AMC Options Bet

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Photo: EIA Alpha Partners CEO Andrew Middlebrooks

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$6B Hedge Fund Cut Off from Trading As Investigation Looms

Hedge fund giant Segantii Capital Management has been cut off from trading by two major banks. From a Financial Times report that broke this morning:

Bank of America and Citigroup have suspended all equity trading with Segantii Capital Management, due to the banks’ concerns about the hedge fund’s bets on the sale of large blocks of shares, according to several people with knowledge of the matter.

BoA and Citi may be acting to save themselves from legal liability. Segantii is caught up in a federal probe of short sellers:

Media reports earlier this year said US authorities had sought communications between Morgan Stanley, which is at the centre of the block trading probe, and a former employee of Segantii.

The federal investigation centers on block trades. Wall Street traders may have sold short stocks when a large block of shares was about to come onto the market, pushing the price down.


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These short sellers should not even know about the block trades. But it seems they’re getting the information, likely from someone inside the bank doing the big trade.

From the Financial Times:

The SEC probe is looking at whether other traders are getting advance word of these large sales — either directly from the banks or in some other way — and improperly profiting by shorting the shares in expectation that prices will fall.

So what will happen to Segantii?

It still has a few banks that will trade with it, including Goldman Sachs. But the federal probe is gathering information on Goldman as well, according to the same Bloomberg report that named Segantii as a subject of the probe.

Two major banks cutting off Segantii entirely is likely to make the fund toxic, in my view. How will you explain to your boss, or the government, that you kept trading with a fund subject to a federal probe even after other big banks cut them off?

Segantii may struggle to keep doing business. And bad press spooks investors, which may lead them to pull their money from the fund.

This could result in a spiral reminiscent of the recent demise of Melvin Capital Management.

One thing Segantii seems to have in its favor is that it has not notched any huge reported losses. Yet.

Do you think Segantii is another Melvin? Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

FBI Raids Short Sellers

The Real Reasons Melvin Is Shutting Down: No Fat Fees and a Federal Investigation

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Photo: Segantii chief Simon Sadler

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The Real Reasons Melvin Is Shutting Down: No Fat Fees and a Federal Investigation

Melvin Capital Management LP is shutting down, according to a report from Bloomberg that broke last night.

The once highflying hedge fund was badly burned by short positions in meme stocks like AMC Entertainment Holdings, Inc. and GameStop Corp in 2021. This year, it lost a further 20% of its capital in bad bets.

Founder Gabe Plotkin sounded positively high-minded in a final note to his investors. From the New York Times:

Mr. Plotkin wrote to his investors that he had decided that the “appropriate next step” was to liquidate the fund’s assets and return cash to all investors.

Mr. Plotkin, who founded Melvin in 2014, also wrote that he recognized he needed to “step away from managing external capital.”

But let’s ignore the sound bites and dig into why Melvin is really shutting down.

Just last month, Melvin tried to remove a crucial provision in its agreement with investors: the “high-water mark.” This provision only lets the fund earn performance fees if it makes back prior losses.


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Hedge funds like Melvin usually charge a 2% management fee and 20% of all gains. The management fee pays for offices and staff, but the 20% performance fee is the real prize for hedge fund managers.

Melvin had lost most of its capital, so it would have to more than double in order to get back to its high-water mark. This would be quite difficult, especially with losses mounting by the day.

So Melvin made a bold request to investors: remove the high-water mark so we can charge you even more fees to make back the money we lost. Such a move is highly unusual and, predictably, investors balked.

Facing many years without that juicy performance fee, Plotkin decided to shut down Melvin rather than try honorably to win back the investor money he’d lost. I find this conduct deranged and disgraceful.

On top of its huge losses, Melvin faces another problem: a federal investigation. The Justice Department is currently scrutinizing its short sales.

No fat fees and a federal investigation. No wonder Melvin is shutting down.

But Plotkin could have at least been honest about the real reasons behind his firm’s ignominious end.

On April 26 on this blog, I predicted that Melvin would shut down. It took just 23 days.

With major losses stinging funds from Melvin to Tiger and beyond, I suspect Melvin will be just the first of many.

Who do you think is the next fund to fall? Leave a comment at the bottom and let me know!

More on markets:

Melvin Capital Faces Investor Revolt

Citadel Adds Millions to AMC Options Bet

Melvin Capital Under Federal Investigation

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Move to T+1 Trade Settlement Could Crush Short Sellers

US markets will soon move to faster settlement of trades. This change could seriously damage some short selling hedge funds.

From a new report in The Trade News:

The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC) are working together to reduce the T+2 settlement cycle in the United States to T+1 by the first half of 2024.

This could quickly lead to regulators requiring that trades settle same day, or T+0, according to a Deutsche Bank report. Faster settlement could have two disastrous effects on short sellers:

Naked Short Selling Gets Harder

Some hedge funds sell short shares without ever borrowing them first. This mostly illegal practice shows up in huge, persistent fails to deliver in volatile meme stocks like GameStop Corp. and AMC Entertainment Holdings Inc.


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If trades have to settle faster, it will be harder to sell short shares you don’t own while possibly locating some shares later. You have less time for your incomplete trade to sit in limbo.

Without this powerful tool to push down stock prices, it will be more difficult for short sellers to tank a stock.

Brokers Are Less Likely to Suspend Trades in Volatile Stocks

Last January, Robinhood Markets Inc. and other brokers stopped users from buying shares of volatile meme stocks like GameStop and AMC. Their rationale was that given how much the stocks’ prices were moving, they couldn’t afford to put up the necessary margin to process the trades.

After buy orders were stopped, GameStop stock plummeted:

Brokers like Robinhood have to post money with clearinghouses such as the National Securities Clearing Corporation (NSCC). The more volatile a stock and the longer it takes to settle the trade, the more money they have to cough up.

If the time it takes for a trade to settle is cut in half, the amount of margin brokers would have to post would likely be cut in half as well. Indeed, reducing margin requirements is one of the main reasons why regulators want to move to T+1 settlement.

Where This Leaves Short Sellers

Short sellers in recent years have had a lot of advantages.

Loose trade settlement rules made naked shorting easier. And if that failed, brokerages might bail you out by stopping retail traders from buying the stock to squeeze you!

And even with these advantages, hedge funds like Melvin Capital lost billions on their short positions. How big would the hole have been without these tailwinds?

The Loophole

There is one good piece of news for shorts: there may be a loophole. SIFMA, a Wall Street Lobby, is seeing to that:

…SIFMA requests an exemption from SEC Rule 15c6-1 for security-based swaps, which are generally bilateral and executory in nature.

This would make swaps exempt from the faster settlement rules. Hedge funds like Archegos have already used these derivative contracts to make massive bets out of the public eye.

If the move to T+1 settlement makes short selling harder, I expect more funds to move into swaps to avoid the rules. I encourage the SEC to find a way to make T+1 apply to swaps transactions as well.

The future is looking darker for short selling hedge funds. The question is, will regulators create a more efficient market for everyone, or let lobbyists pick apart their work piece by piece?

What do you think new settlement rules will mean for short sellers? Leave a comment at the bottom and let me know!

More on markets:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

Hedge Funds Could Lose Nearly Half of Assets Under Proposed SEC Rule

Archegos Used Swaps to Hide Positions; Other Funds Are Too

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Photo: Prominent short seller Gabriel Plotkin, founder of Melvin Capital

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Hedge Fund Tiger Global’s Coming Liquidity Crisis

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! 👋

More on markets:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

How Giant Hedge Fund Tiger Global Blows Up

Melvin Capital Faces Investor Revolt

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Photo: Tiger Global CEO Chase Coleman

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Hedge Fund Giant Tiger Global Losing $28 Million an Hour

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.

More on markets:

How Giant Hedge Fund Tiger Global Blows Up

Hedge Funds Pull Back from Tech Amid Big Losses

Hedge Funds Could Lose Nearly Half of Assets Under Proposed SEC Rule

Photo: Tiger Global CEO Chase Coleman

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.