Tiger Global is one of the most successful hedge funds of all time. Created by Chase Coleman (Trades, Portfolio), a Tiger Cub who earned his stripes studying under hedge fund pioneer Julian Robertson (Trades, Portfolio), Tiger Global started its life just after the dot-com bubble, which was a fortuitous time to begin investing.
Coleman had a lot of experience in the technology sector, and his decision to go out on his own coincided with a collapse in tech stock valuations around the world. He was able to take advantage of this situation and capitalize on the low valuations of tech stocks. Over the next two decades, Tiger Global was able to ride the success of the tech sector. It has been able to use its increasing influence and reputation in the sector to launch private investment funds, only increasing its foothold in the technology industry and improving the pipeline of potential opportunities available for the hedge fund to invest in and capitalize on.
The perils of tech investing
One of the most painful lessons of investing is that past success does not gurantee future results. An example of this is Tiger Global's investment in South Korean e-commerce retailer Coupang (CPNG, Financial). Tiger Global first acquired a substantial position in this company when it was a private business. Coupang raised around $3.4 billion as a private company, and one of its largest backers was Tiger Global.
These investments paid off handsomely when the company went public in 2021. Coupang's IPO was highly sought after, and it helped the hedge fund achieve one of its best quarterly performances on record when it hit the market.
But since the company's IPO, it has failed to live up to the market's lofty growth expectations. The stock has fallen from around $50 per share to less than $20 on growth concerns and a general turnaway from high-growth stocks in 2021 as inflation spikes and money retreates to safer investments.
This isn't the only technology bet that has recently turned sour for Tiger Global. According to initial reports, the hedge fund is recording losses in the double-digits this year after a high single-digit loss in 2021. If this trend carries on, it could be the worst run of bad luck the hedge fund has suffered in its life.
The key lessons
The team at Tiger Global has far more experience in managing individual technology positions than I do, so I'm not going to comment on their performance too much at the moment. They have been in this position before, and the hedge fund has come out on top.
However, I think investors need to take two lessons away from this scenario. First of all, I think this example shows how difficult it can be to follow hedge fund positions. Yes, one of Tiger's best-performing investments last year was Coupang, but this was off the back of a significant private investment, which individual investors would not have been able to take part in. Individual investors would have had to buy the stock in the open market at the time of the IPO. As a result, they would be at an instant disadvantage.
Another takeaway from this scenario is the challenges of investing in high-growth stocks. Tiger is probably one of the best investors in technology in the world, but even this hedge fund has found itself wrong-footed by the recent market turbulence.
Only time will tell if the company's underperformance is just a one-off or something more entrenched. Still, individual investors are unlikely to be able to deal with this sort of volatility. Tiger has the brainpower and financial resources required to deal with uncertainty and volatility, whereas individual investors may find themselves in more immediate need of cash in this high-inflation environment.
These lessons illustrate why it is important for individual investors to concentrate on valuation and their own circle of competence when looking for investing opportunities. It is not sensible to buy a stock just because other investors have a position, even it's a successful hedge fund.
