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Is this the end of the single-manager mentality?
At DD we’ve written often about the descendants of hedge fund king Julian Robertson’s Tiger Management and the diverging fortunes of the so-called “Tiger cubs”.
On one end of the spectrum, you’ve got Bill Hwang, who was arrested by US authorities last month and charged with racketeering, securities fraud, wire fraud and market manipulation following the implosion of his family office Archegos Capital Management.
On the other end there is Chase Coleman, who has spent the past several decades building Tiger Global into the largest and most successful hedge fund of any of his fellow cubs.
But no matter where they’ve ended up, most of the pack have deployed a long-short playbook, placing big bets on tech and shorting underperforming stocks.
Now, the model has come back to bite. Tiger Global has bled around $17bn so far this year as rising interest rates puncture its bets on companies such as Peloton and Zoom. Nearly two-thirds of the dollar gains it has generated for investors since its 2001 launch have been erased.
Coleman isn’t the only star manager whose shine has been dulled by the tech sell-offs. Melvin Capital Management, the hedge fund that lost billions of dollars in last year’s meme-stock rally, has told clients that it is winding down its funds, according to a letter to investors seen by DD.
“I have given everything I could, but more recently that has not been enough to deliver the returns you should expect. I now recognise that I need to step away from managing external capital,” the New York-based firm’s founder Gabe Plotkin wrote.
“If you owned growth stocks this year . . . you got your face ripped off,” Brad Gerstner, founder of tech-focused fund Altimeter Capital Management, wrote on Twitter this month, adding that his firm “didn’t hedge enough” and “moved too slow”.
Not all hedge funds have been caught flat-footed by tech sell-offs. So-called multi-manager funds, such Izzy Englander’s Millennium Management and Ken Griffin’s Citadel have benefited from employing multiple teams of traders and diversifying across a range of strategies and asset classes.
The strategy has enabled them to be nimbler in the face of the market mayhem brought on by the coronavirus pandemic, meme-stock mania and now tumbling tech shares.
Coleman has diversified in his own way, gaining notoriety in recent years for his hard-and-fast start-up investing tactics that have upset the clubby ranks of Silicon Valley venture capitalists. Coatue and other cub-run funds such as Lee Ainslie’s Maverick Capital and Andreas Halvorsen’s Viking have also been dabbling in private markets.
But no matter how far Coleman and his fellow cubs veer from traditional hedge fund structures, centring their entire strategy on one manager’s vision has proved problematic.
The resilience of funds such as Millennium and Citadel might suggest that multi-manager funds are the new master stockpickers.
London tries to mitigate fintech flight risk
Earlier this year, London’s IPO market was dealt a devastating blow: CVC Capital Partners, Europe’s biggest private equity firm, drew up plans for a public debut on Amsterdam’s Euronext exchange instead of choosing the UK capital, where it has its most significant presence.
It wasn’t the first time a sought-after listing has given London the cold shoulder post-Brexit, which has complicated the regulatory landscape and intensified rivalries between the UK and EU markets.
Meanwhile, London’s private investment sphere has been hot. Tech start-ups in London raised a record $25.5bn in funding last year, more than double the total in 2020, as the number of British “unicorns” climbed to 75, including car insurance start-up Marshmallow and fintech firm Starling Bank.
The latest fintech darling to come on to the London scene is cloud banking start-up Thought Machine, which offers its cloud-based banking infrastructure “Vault” to more than 35 banks globally.
The company has doubled its valuation to $2.7bn in a funding round. Its backers are a mash-up of institutional investors and major banks — many of which are also its own clients — including JPMorgan Chase, Lloyds Banking Group and Morgan Stanley.
But that doesn’t mean it’ll ultimately pick the UK for an IPO. Start-ups worth a total of $88bn left London to list elsewhere last year.
The UK government is hoping to change that, with plans for a new regulatory framework announced in the financial services and markets bill, introduced as part of the Queen’s Speech last week.
Thought Machine could be an important test of the success or otherwise of that strategy. It has an IPO timeline of around three years, its founder and chief Paul Taylor told the FT, adding that London is a strong contender.
Private lenders grease Peloton’s wheels
Early on in HBO’s Sex and the City reboot, “Mr Big” set off on a Peloton ride from which he would never return.
The beleaguered fitness group, which has sweated its way through various PR disasters, steep losses and a dwindling cash pile (with rusty hardware to boot), may not suffer the same fate after all.
Private lenders including Blackstone and Apollo have joined public loan investors to relieve some of the pressure on Peloton’s balance sheet with $750mn of new debt on Tuesday.
These so-called hybrid deals, where financing is sourced from both private and public markets, are becoming increasingly common as private debt investors such as Apollo swoop in to provide cash in volatile markets that other asset managers may deem too risky — all for a higher interest rate than corporate borrowers would typically pay bondholders, naturally.
The private debt industry’s assets have swelled to $1.2tn, according to Preqin data.
It is another sign, alongside Elon Musk’s financing package for his (now less probable) $44bn Twitter takeover, that the mix of syndicated debt and private capital is fast replacing the traditional buyout model.
Job moves
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Nike’s head of diversity Felicia Mayo will leave the company at the end of July, according to an internal email and people familiar with the matter. She joined from Tesla in 2019 and is the second Nike executive to leave the role in a two-year period.
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Former Metro Bank chair Vernon Hill is asking a federal court to block a move by his boardroom adversaries to oust him as chair of the US bank Republic First Bancorp.
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BNP Paribas has promoted Dimitri Jobert as head of financial sponsors coverage for the Americas, based in New York.
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Barclays has named Dion Di Miceli as head of investment banking coverage of investment companies for its UK corporate broking team and Andrew Davies as head of equity sales activity for investment firm clients. They join from Gravis Capital Management and Liberum Capital, respectively.
Smart reads
Lehman Brothers lingers on The bank that collapsed 14 years ago is still haunting Wall Street as its lawyers, accountants and consultants sort through what is left of the mess, Bloomberg writes.
Taming the bull Rising yields and interest rates have finally slowed the bond bull market after a three-decade run. Pimco, the poster child of the bond boom, must adapt or risk falling behind, the FT’s Brooke Masters reports.
Trouble in Spac land As once-popular Spac stocks slide to new lows, prolific sponsors such as Chamath Palihapitiya could soon be forced to foot the bill if their blank-cheque vehicles fail to strike mergers, the Wall Street Journal reports.
News round-up
Saudi Arabia’s PIF acquires 5% stake in Nintendo (FT)
Barclays doubles stake in Australian investment bank Barrenjoey (FT)
Shipping group CMA CGM to take Air France-KLM stake under cargo tie-up (FT)
Moderna chair defends executive hiring process after CFO fiasco (FT)
Aviva chief Amanda Blanc says sexist investor comments could prompt wider AGM rethink (FT)
Volkswagen set to get unconditional EU nod for Europcar deal (Reuters)
London’s Global Switch to kick off $10bn data center sale (BBG)