Tiger is suffering one of the biggest hedge fund drawdowns in history

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Yikes. Tiger Global got smoked again last month. Kudos to Bloomberg for getting the scoop, but here is the FT’s story:

Tiger Global’s flagship hedge fund was dealt a fresh blow in April and is now 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.

The losses mark a dramatic fall from grace for Tiger Global’s founder Chase Coleman, who has emerged as one of the world’s most prominent growth investors after founding the firm in 2001.

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. Together across the two funds, the firm managed around $35bn in public equities at the end of 2021.

A 44 per cent loss in four months is epic. The 52 per cent loss of its long-only equity portfolio is ARKK territory. (Ed note: ARKK is actually “only” down 47.2 per cent this year).

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.

One-five hard yards.

To put that into perspective, Citadel lost 55 per cent for an estimated $8bn loss in the 2008 financial crisis, which led CNBC to camp a van outside its Chicago headquarters and nearly caused it to perish. In nominal terms this must be at or near the top of the biggest hedge fund drawdowns in history?

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. It’s almost impressive.

Here is the letter Chase Coleman and team sent out to investors yesterday, which the FT got hold of.

Dear Investor,

April added to a very disappointing start to 2022 for our public funds. Markets have not been co-operative given the macroeconomic backdrop, but we do not believe in excuses and so will not offer any. We are continuing to manage the portfolio in the ways we described in our Q1 letter. We are confident in our team, our process, and our portfolio and know we will look back on this as one point in time on a long journey and benefit from the process improvements we continue to make as a firm. We are here to answer your questions, remain committed to earning back our losses, and intend to be as transparent and communicative as possible during this challenging period.

We appreciate your commitment and trust.

Sincerely,

The Tiger Global Investment Team.

Griffin famously survived his annus horribilis and transformed Citadel into one of the biggest, baddest hedge funds of the lot, making friends online along the way. Coleman is by most accounts a pretty brilliant investor as well, and maybe this will end up being another redemption story in years to come.

But the reality is that these kinds of losses are hard to recover from, due to the economics of the hedge fund industry.

Hedge funds famously charge fat performance fees on top of annual management fees. Although the latter are nothing to sniff at, often being twice as large as what boring mutual funds charge, it is the performance fees that have helped make some hedge funders the wealthiest people on the planet.

To make sure that hedge fund managers don’t just make tons of money in the good years and stiff investors in the lean ones, most have “high water marks” which the fund must be above to generate performance fees. That could now be difficult for Tiger, as former hedge fund manager and fulltime peacock Mike Novogratz noted on Twitter.

https://twitter.com/novogratz/status/1521486618510696450

The problem is that when you can’t make those sweet performance fees, it becomes a lot harder to retain your top people. They might be tempted to walk out the door to set up their own shop or join a competitor rather than slog for years to get back up to the high water mark.

This was the problem that Melvin Capital’s Gabe Plotkin tried to solve when he last month said his hedge fund would eject investors from its fund before letting them reinvest in a new one. That would allow it to start charging performance fees again despite still being heavily under water from the GameStop saga last year. That went down like a cup of cold sick, forcing Plotkin into an embarrassing backtrack.

Ted Seides of Capital Allocators has written an EXCELLENT run-down of the saga and the wider issues.

Returning to Tiger, this doesn’t seem to be an issue of leverage and forced liquidations, just long positions getting absolutely hammered and short positions not being able to make up for it. Money in its bigger private market portfolios is locked up, which will help Tiger ride out the pain.

But it badly needs the growthy tech stocks it piled into to pick up again soon, or things will bleaken quickly. The problem is that even some top technologists think things can get worse before they get better.

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