Tiger Cubs: How Julian Robertson built a hedge fund dynasty
Robertson founded Tiger Management, one of the earliest hedge funds. Robertson is credited with turning $8 million in start-up capital in 1980 into over $22 billion in the late 1990s, though that was followed by a rapid downward spiral of investor withdrawals that ended with the fund closing in 2000.
In 1993, his compensation and share of Tiger’s gain exceeded $300 million. His 2003 estimated net worth was over $400 million, and in December 2017 it was estimated by Forbes at $4.1 billion.”
The Financial Times article says that Mr Robertson’s influence in the world of hedge fund management is extensive: “Close to 200 hedge fund firms can trace their origins back to Tiger Management, according to investor LCH Investments. They are linked either through time at the original hedge fund, the 50 or so groups where Robertson provided seed capital to launch their businesses or as so-called ‘grandcubs’ that broke away from alumni firms. Only George Soros’s hedge fund Soros Fund Management comes close to having incubated so many key players in the industry,”
Mr Robertson’s investment approach was simple: use fundamental research to buy on the best companies and go short (i.e. sell) the worst companies. He trained his staff to do this in market after market, decade after decade.
So how was Mr Robertson able to spot for decade after decade the best talent entering the hedge fund industry? Here is what the Financial Times has to say: “Robertson told the FT that a rigorous hiring process was key: “I think they were talented people and we went after them in a very deliberate and planned way,” he said. “They were really picked very carefully.”
Philippe Laffont, founder of Coatue Capital, one of the most prominent Tiger Cubs with $50bn under management, said Tiger’s focus on hiring “people who were well-rounded instead of specialists” was the “special sauce” that “created a culture of people who were competitive, curious and extroverted”.
A key player in that process was Dr Aaron Stern, a psychoanalyst who worked in various roles at the firm including chief operating officer for 30 years. Dr Stern, who died in April aged 96, was a leading expert in narcissistic personality disorder and wrote the influential 1979 book Me: The Narcissistic American.
“Aaron was a great, great man,” said Optima’s Boardman. “It would be too much to say he was responsible for Julian’s success . . . But he was the one who sorted out who should be there, who should be at the king’s table.”
Robertson used Dr Stern in the early 1990s to develop a systematic way of replicating Tiger Management’s early success hiring talented young analysts, which had until then relied on Robertson’s gut instinct. The test for applicants consisted of about 450 questions and lasted over three hours.
“He was very important because he really did perfect . . . this recruitment technique that we used,” said Robertson.”
The FT article gives more details of this remarkable test that Dr Stern developed to identify NOT the brightest fund managers but the most able i.e. the fund managers most able to understand risk, take risk and then live with the consequences. (As brokers we used to service some of the Tiger cubs and we can validate that their risk taking would be beyond the comprehension of most normal people.) These fund managers then worked 14 ours a day, ate, worked out and practically lived in the office. Their competitors for the most part were mutual fund managers running diffused mandates. It was an unfair fight which Tiger and its cubs won for the most part.