Julian Robertson, the legendary investor who ran the hedge fund Tiger Management ended his career as he lost money shorting the dot com mania only to give up just before the bubble burst. However, several of his proteges set up their own hedge funds and came to be known as Tiger cubs. The most famous of them is Tiger Global, run by Charles Coleman, who in contrast to Robertson’s skepticism of the speculative dot com bubble, became big betting big on tech only to report one of the largest losses in the industry in last year’s crash. This piece in the New York from last year explains what went wrong.
In the two years to the end of 2021, Tiger’s assets had tripled. “… had become one of the biggest firms of its kind — it operates a hedge fund, a long-only fund, and several venture-capital funds — in the world. Including the debt it employed, it was managing about $125 billion with an investment staff of 52 people… A year earlier, Tiger Global’s hedge fund had topped a widely followed industry performance list — making some $10.4 billion for investors during the pandemic year of 2020, when its tech bets skyrocketed. By almost any metric, it was one of the most successful players in an extremely crowded and competitive global industry. At the time, Coleman was only 45, the youngest hedge-fund manager to ever make the list. His net worth would soon hit an estimated $10 billion.”
It would all soon unravel to equally record proportions:
“Tiger Global’s drubbing far surpasses that of Bridgewater Associates, the world’s largest hedge fund, which lost $12 billion in 2020, or Melvin Capital Management, the now-infamous target of the Redditor-led short squeeze of GameStop shares in 2021, which cost it $6.8 billion. Long Term Capital Management, the most notorious hedge-fund blowup of all time, shed a mere $4.6 billion when it almost collapsed in 1998.
So what went wrong?
“Silicon Valley insiders often bemoan the idea that Tiger Global threw money at tech start-ups with a size and velocity that changed the industry for the worse. ..In recent years, Tiger Global seemed increasingly to dominate the VC world. In 2021, it backed a dizzying 335 deals, more than one investment per business day.
“Tiger could be a little bit more aggressive. They could move quicker. They paid higher prices than a lot of their venture peers,” says hedge-fund consultant Greg Dowling of Fund Evaluation Group. “And that worked really well until everybody else started following the same strategy. They got bigger, which means you had to put more money out. Prices got higher. And so at some point, it stopped working.””
This aggression combined with its unique VC plus hedge fund approach spelt disaster:
“Tiger Global had created a symbiotic relationship between its hedge-fund holdings and its venture-capital investments. As a venture firm, it invested in private companies — mostly internet, consumer apps, or software — as they were getting closer to going public. With its aggressive style, Tiger helped drive up valuations overall for such companies, boosting the rise of the so-called unicorns.
Based in New York City, Tiger Global was never part of the Silicon Valley culture of seeking out visionary founders and holding the hands of entrepreneurs. It differentiated itself by coming in to later rounds of financing and plugging numbers into its models — arguably bringing more of a Wall Street ethos than a Sand Hill Road one to venture investing.
The hedge-fund portion of the strategy came into play as these unicorns went public: Before the IPOs, Tiger Global’s hedge fund would also invest in the same unicorns as were backed by its VC funds. In a buoyant market, the stocks typically took off, as fellow Tiger cubs as well as other hedge funds bought into what became a growth-stock bubble. That way, a big winner in the venture-capital portfolio could become a big winner in the hedge-fund portfolio.
One of those unspoken “rules” Tiger Global broke was allowing separate Tiger Global venture-capital funds to invest in the same company. This practice had often been prohibited in VC-land in the past because the newer funds can end up making the older funds look better simply by buying a piece of the companies in the earlier funds’ portfolio.”
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