How Tiger Global withdrew its claws when the tech bubble burst

As financial markets soared in 2021, fuelled by a pandemic surge in technology stocks that made Tiger Global one of the most successful hedge funds on the planet, the firm invited in US downhill skier Lindsey Vonn to offer advice to about 30 investors.

Tiger’s analysts quizzed Vonn on how she recovered from a traumatic crash at the super-G world championships in 2013, suffered through a year of rehabilitation and, in her second race back, became world champion again.

Now, the New York-based hedge fund, which managed over $90bn in assets at its peak, is drawing on the lessons of her recovery, say people familiar with the matter, after its flagship fund shed about half its value by July, causing billions of dollars in investor losses.

Hammered by fast rising interest rates and tumbling tech stocks that benefited from the Coronavirus pandemic, the firm’s press-shy billionaire founder, Chase Coleman, has overhauled one of the world’s largest and most closely watched portfolios, reining in Tiger’s legendary risk appetite.

One person familiar with Tiger described its newfound approach more prosaically as “a focus on not losing money”.

Tiger investment teams in the US and Asia met at a frenetic pace since February as they decided to slash holdings in pandemic beneficiaries like videoconferencing start-up Zoom, e-signature specialist DocuSign, online used-car company Carvana, food delivery app DoorDash, video game company Roblox, and crypto brokerage Robinhood, according to regulatory filings that came out this week.

Other large positions cut include crypto-firm Coinbase, internet retailer Warby Parker, music group Spotify and connected-fitness bet Peloton Interactive, according to the filings.

As it battened down the hatches — and risked missing out on a rally for the kind of tech stocks the fund had decided to ditch — Tiger concentrated its portfolio in companies it believes are more than just pandemic winners and is closely scrutinising whether technology earnings will follow valuations and begin to decline.

“As companies adjust their forecasts, we are focused on whether company earnings will follow prices, and revisions to our models are necessary,” said Tiger in an August letter to investors obtained by the Financial Times.

The firm has moved away from high-risk tech groups while maintaining its focus on more stable companies, including large, long-term bets like software groups Microsoft, Atlassian and Sevicenow, as well as cyber security firm CrowdStrike, Brazilian fintech Nubank, Chinese ecommerce group JD.com, and Sea, the Singapore tech conglomerate, according to people familiar with the situation and filings.

It also built large positions in technology giants Meta, Alphabet and cyber security firm SentinelOne before a recent spike in the Nasdaq, the people said.

Significant new positions have emerged in China, where tech stocks foundered for years but have outperformed in 2022. Tiger now counts jobs website Kanzhun and electric carmaker Li Auto as top 10 long positions firmwide, the filings show.

More broadly, Tiger dramatically cut its overall exposure to stocks — paring back its bets that prices will rise and increasing the prominence of its short book, which bets that companies will decline in value and is overseen by Coleman, say the same people.

“We have been working diligently on ideas for our short portfolio, which has been profitable this year but tracked market indices more closely than our longs,” Tiger told investors in its August letter.

Tiger’s hedge fund has stepped to the sidelines of investments in privately held start-ups. The fund, which can invest a minority of its portfolio into private companies, has not made a new private investment in over a year, the people say.

Within its private equity portfolio, Tiger has sharply marked down companies it deems closest to going public, like fintech Chime and ecommerce company Checkout.com, to account for an increased risk that a listing sees their valuations tumble, the fund told its investors according to those familiar with the matter.

In its quarterly letter to investors earlier this month, Tiger alerted investors to the ongoing changes to its portfolio.

“We have embraced the opportunity to use recent lessons learned to improve our investment process,” said the fund.

As part of its effort to rebound, the firm is investing heavily in data science to better monitor its positions and changes in the investment team have also been made.

Edward Lei, a partner overseeing investments out of China who had been with Tiger for nearly a decade, has left the firm according to documents seen by the Financial Times. Tiger recently hired Dai Wang, a longtime portfolio manager at T Rowe Price, to lead its public stock investments in the country.

Sam Harland, an investor who helped oversee what was once Tiger’s over $1bn position in Carvana, has also left. Tiger recently hired Ben Tso, a former analyst at Palestra Capital Management, to focus on consumer-related investments.

Later in August, Evan Stanleigh, a partner at hedge fund Cadian Capital, will join Tiger. Then, in September, the firm will bring in four more new analysts, making its investment team larger than ever before, said the people familiar with the matter.

Coleman, who was trained by Julian Robertson at Tiger Management, launched Tiger Global in 2001 amid the bursting of the dotcom bubble, has made many billions invested in the firm’s funds, with much of the money invested in private equity funds that have long-term lockups.

But despite the recent scrutiny, Tiger has no interest in converting its hedge fund into a family office, said two sources, a move some struggling funds make near their nadir.

Annualised net returns of its flagship fund since launch have dipped from 20 per cent as of last September to below 15 per cent as of June 30, according to documents. The funds also started to recover during June and July.

This summer, under different circumstances, Tiger hosted another sports celebrity, the 23-time gold medal winning swimmer Michael Phelps, who offered inspiration as financial markets melted down. He described how to use defeat as a motivator.

“One of the messages we have consistently heard from Michael and other high performers over the years is that the path to long-term success is rarely linear,” Tiger recounted to its investors.

“Setbacks and losses are part of the deal,” it said. “There’s no shortage of motivation to win again for our investors, and we are confident that we will.”