Tiger Cubs’ Wrong-Way Bets Cut Flow of Fresh Cash to a Trickle

Not so long ago, investors couldn’t get enough of the Tiger Cubs, the hedge funds run by Julian Robertson’s proteges. Now the flood of money has slowed to a trickle, after the portfolios posted some of their worst returns ever.

(Bloomberg) — Not so long ago, investors couldn’t get enough of the Tiger Cubs, the hedge funds run by Julian Robertson’s proteges. Now the flood of money has slowed to a trickle, after the portfolios posted some of their worst returns ever.

Cash from US investors flowing into funds run by Steve Mandel, Philippe Laffont and Dan Sundheim has plunged, in some cases down 98% from the prior 12 months, according to regulatory filings. It’s a sharp reversal from years when a single one of them might take in hundreds of millions — if not billions — of fresh money.

Mandel’s Lone Pine Capital attracted only $24 million in its hedge fund for the 12 months ended in March, while Sundheim’s D1 Capital Partners collected $30 million during a 12-month span that ended in July. That’s down from $364 million and $1.4 billion, respectively, for the comparable periods a year earlier. The intake at the hedge fund of Laffont’s Coatue Management dropped to $370 million from $892 million.

“Investors have soured to the Nth degree when it comes to most of the Tiger Cubs,” said Brian Payne, chief strategist of private markets and alternatives at BCA Research and former investment officer at the Teachers’ Retirement System of Illinois. “I’m not surprised to see this drop in flows, given the group’s performance last year. Institutional investors are now questioning what diversification they get from long-short equity managers that have had high-beta to tech stocks.”

For Coatue, the 12-month period through early May marked the lowest inflows since at least 2017. For D1, the 12 months through the first week of July was the first time it took in less than $1 billion since its founding.

Tiger Alums

Inflows shrank at two other cubs. The hedge fund at Chase Coleman’s Tiger Global Management added $13 million in the 12 months through July 7, versus $2 billion a year earlier, while the pool at Andreas Halvorsen’s Viking Global Investors gathered $221 million through March 3, down 81% from the previous period, though the funds were closed to new investors for much of that time. Still, it’s not uncommon for funds to accept cash while they’re ostensibly closed to replace redemptions, or make exceptions for influential investors.

The five funds were dubbed Tiger Cubs because their founders are veterans of the late Julian Robertson’s Tiger Management. D1’s Sundheim, who worked at Viking, is considered a grand-cub. While Tiger Management spawned a vast network of hedge fund founders, these names became the biggest and most successful, with outsize gains that landed them on lists of the industry’s top performers. 

But early last year, plunging tech stocks and sinking private company valuations hit hard. Some of them rushed to sell shares to stop the bleeding, but this curtailed their gains amid July’s powerful stock rally, when the Nasdaq Composite posted its best month since December 2020. 

Bloomberg examined regulatory Form D filings, which essentially update the total amount of money that a fund has raised from US-based investors during the preceding 12 months. Because money managers update their Form Ds on different dates, the inflows can have end dates that vary from peers by months. The filings generally don’t include inflows from investors outside the US, nor do they show redemptions in that period.

Representatives for the firms declined to comment.

In June of last year, Tiger Global decided to close to new cash, turning away some investors who sought to contribute, according to people familiar with the matter, asking for anonymity to discuss the private fund. It’s unclear how many requests to invest the firm fielded following its 56% loss.

The $13 million its hedge fund added over the 12 months through July came from employees and commitments made to clients in previous years, one person said. 

Viking Reopens

Viking’s hedge fund also was closed to new cash for most of the period in question. In January, the fund opened its doors for the first time in more than a decade after seeing redemptions. Viking has had inflows since then, a person familiar with the fund said, but the amount hasn’t been made public. 

“Even if a fund is closed to new capital, they will often open up for influential investors or big tickets,” Payne said. “So if a fund is so-called closed and has a huge drop in new investor cash, it might suggest that their waitlist has dried up.” 

In 2021, Lone Pine still took in more than $1 billion when it was closed, as did Viking in 2017. A year later, Tiger Global’s hedge fund accepted $1.3 billion when it, too, was closed.

Client inflows after a bad year are key for a hedge fund. After losses, most hedge fund investors don’t pay the full array of fees, but new clients would be subject to them. Firms typically get 2% of clients assets and a 20% cut of profits; coveted managers can charge even more.

Amid that backdrop, it’s been a struggle to raise money for some hedge-fund firms, especially for stock-pickers, as rising rates hurt performance and investors trimmed allocations. They pulled $13.1 billion from hedge funds in June alone — the 13th consecutive month of net redemptions, according to eVestment. 

“Hedge fund sentiment has dropped pretty dramatically, and that certainly influences flows,” said Mark Yusko, founder of Morgan Creek Capital Management, which manages about $2 billion and invests in hedge funds. “This large group of managers have the same DNA, a lot of overlap of holdings and investing style. And that area I would say is as far out of favor as any time I’ve seen it.”  

–With assistance from Katherine Burton.

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