Some businesses have fallen sharply from their highs as investors question their appeal in a post-lockdown world
Author of the article:
Financial Times
Laurence Fletcher and Akila Quinio in London
A monitor displays Peloton Interactive Inc. signage during the company’s initial public offering at the Nasdaq MarketSite in New York, U.S. Photo by Michael Nagle/Bloomberg files Several hedge funds spawned by Julian Robertson’s investment firm Tiger Management Corp. have sustained steep losses in recent months, after big falls for United States tech stocks in which many of them held stakes.
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A group of so-called Tiger Cubs, including Chase Coleman’s US$90-billion-in-assets Tiger Global Management LLC, Philippe Laffont’s Coatue Management LLC and Glen Kacher’s Light Street Capital Management LLC have backed a similar cohort of companies including Peloton Interactive Inc., Video Communications Inc. and Block Inc., according to analysis by the Financial Times.
Such businesses were big winners in the early stages of the pandemic. But some, including Peloton, have fallen sharply from their highs as investors question their appeal in a post-lockdown world. Some more established tech names popular among the cubs, such as Amazon.com Inc. and Microsoft Corp., have also fallen recently.
Expectations that interest rates will rise this year —particularly in the U.S. — have also dealt a blow to more speculative companies whose large expected future profit streams are flattered by low borrowing costs.
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The Tiger Cubs “were buying growth today and tomorrow, but the earnings weren’t there in some of the stuff they were buying”, said Dixon Boardman, chief executive of Optima Asset Management, who has previously worked with Robertson. “For ‘jam tomorrow (companies),’ it’s been a wicked, wicked punishment all round.”
It’s been a wicked, wicked punishment all round
Dixon Boardman
Share falls across the technology sector have caught out a number of the cubs, for whom once high-flying performance records tipped into reverse at the end of last year and into 2022.
“It’s been brutal,” said one hedge fund industry insider. There has been “massive amounts of pain.”
Tiger Global lost 7.5 per cent last year and a further 14.8 per cent in January, while Steve Mandel’s Lone Pine Capital LLC, another cub, fell seven per cent last year and a further 10 per cent in January, say people who had seen the numbers. Light Street fell 26 per cent last year and 15 per cent in January
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The cubs, some of whom rank among the top-performing hedge funds of all time, have at times drawn criticism for significant overlap in their portfolio positions.
The FT’s analysis of regulatory filings identified 15 tech stocks in which a group of funds tracing their origins back to Robertson’s Tiger Management have often held positions over the past year.
A Peloton exercise bike. Photo by REUTERS/Shannon Stapleton/File Photo One of the most painful holdings has been Peloton. Tiger Global, Coatue, Light Street, D1 Capital Partners LP and Viking Global Investors LP all held positions during 2021, with the latter two buying into the stock early that year. Tiger Global held more than US$1 billion mid-year, when the stock was trading around US$124.
Peloton’s share price climbed from US$28 at the end of 2019 to peak at more than US$170 in early 2021, as investors bet that the maker of connected fitness bikes and treadmills would prosper during lockdowns.
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But it has since collapsed to less than US$25, hit by product recalls and missed targets. The company’s reputation also suffered when a character in TV show Billions suffered a heart attack using a Peloton bike, and last year when a central character in Sex and the City died after using the equipment. D1 and Light Street both sold their positions during 2021, while Tiger Global increased its holding.
Some hedge funds have even been able to profit from taking the opposite bet to the cubs. Odey Asset Management LLP’s James Hanbury, for instance, shorted Peloton until late last year —wagering its share price would fall — according to documents seen by the FT.
“It’s amazing they missed it,” said one industry insider whose fund made money betting against Peloton, referring to the Tiger Cubs’ positions in the stock. “It wasn’t like these issues were hidden.”
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The Zoom Video Communications Inc. homepage on a laptop. Photo by Tiffany Hagler-Geard/Bloomberg files Video-conferencing company Zoom was another early lockdown winner that has since fallen back sharply. Coatue, Tiger Global and Light Street were all backers of the stock, although Light Street sold out in the fourth quarter of last year. The shares, which peaked at more than US$580 in late 2020, have tumbled from US$337 at the start of last year to about US$110 as sales have slowed.
Robertson’s Tiger Management, which he established in 1980 and closed down in 2000, was one of the early pioneers of the hedge-fund industry. It is also known as one of the most influential investment firms of all time.
Tiger Management has produced numerous cubs and so-called grandcubs, such as D1, which came out of Tiger cub Viking. Close to 200 firms can trace their roots back to Tiger.
A number have adopted similar investing styles, focusing on technology companies with strong market positions in areas with high barriers to entry, even if they trade on valuations that might appear high on traditional metrics.
Coatue’s Laffont tweeted last year: “Many times I can’t understand new technologies but if the founder is so engaged that it feels ‘magical’ then I try to invest anyway. Once money is on the line, the learning always happens faster!”
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7/ The best way to get energized about new trends is to meet incredible founders. Many times I can’t understand new technologies but if the founder is so engaged that it feels “magical” then I try to invest anyway. Once money is on the line, the learning always happens faster!
— Philippe Laffont (@plaffont) February 21, 2021 Tiger Global’s Coleman wrote last year, in an investor letter seen by the FT, that the team was “grateful to have begun our investment careers at a time when the internet era was just beginning.” He added that one of his investing mistakes had been to sell stocks including Peloton and Netflix Inc. too early, only to buy them back later on much higher valuations.
Jim Neumann, chief investment officer at Sussex Partners, which advises clients on hedge-fund investments, said the cubs ended up holding some of the same stocks because they have been “pushed to those names with upward momentum,” while their large asset sizes can mean they plump for larger stocks.
“If you buy one you buy them all,” said one hedge fund investor, referring to investing in the cubs’ funds.
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Tiger Global, Coatue, Viking, Maverick Capital Ltd., Lone Pine, D1 and Light Street declined to comment.
More On This Topic China is hidden risk for emerging markets that’s split traders Bill Ackman’s Pershing Square takes new stake in CP Rail worth $280 million Saudi prince’s US$500 billion ‘Neom’ megaproject woos Wall Street While some of the cubs have cut back positions during the market reversals, it appears that a number are sticking with their investing style. Both Tiger and D1 wrote to investors late last year, say people familiar with the move, giving them the chance to invest more money into vehicles which are normally difficult to access.
Last month, Tiger Global’s Coleman and Scott Shleifer held a call for investors, reiterating their conviction in their process and highlighting buying opportunities in the market. As well as Peloton, the fund has increased positions in Block and Zoom during the fourth quarter.
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Article content While performance has disappointed in recent months, many investors still back the cubs to thrive again.
“The generalized tech trade has a long way to go,” said Michael Storm Jeske, who previously worked at Tiger cub Shumway Capital and now runs research firm III Macro. “And (the cubs) are generally the masters of the tech trade.”
Additional reporting by Miles Kruppa
The Financial Times Ltd.
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