"Our mandate is to find the 200 best companies in the world and invest in them, and find the 200 worst companies in the world and go short on them. If the 200 best don't do better than the 200 worst, you should probably be in another business." --Julian Robertson
For a decade and a half, Julian Robertson (Trades, Portfolio) was the "Wizard of Wall Street," but that all came undone when he failed to find a way to deal with the tech bubble. He shut down his funds in 2000, and began investing his remaining capital with many of the 40 “cubs” who had worked for him.
Chase Coleman (Trades, Portfolio) was one of those cubs, but he has embraced tech stocks since beginning his own firm that same year. So far, that has worked out well, but will it last?
Who are Robertson and Coleman?
Robertson, born in 1932, started one of the first hedge funds, Tiger Management Corp., in 1980. His firm started with $8 million and had grown to more than $23 billion in the mid-1990s. However, results in the late 1990s were poor, so investors pulled much of their capital; Robertson closed the doors to outside investors in 2000, and has since run it as a family office.
Coleman, born in 1975, began working for Robertson and Tiger Management in 1997. When the fund closed three years later, Robertson assigned Coleman some $25 million to manage. Coleman then created Tiger Global Management. He and the firm won acclaim for investing in Facebook (FB) when it was a startup, and he went on to sell his stake for an estimated $1 billion in 2013.
Robertson now invests his personal fortune in other hedge funds, including many established by his former employees. Business Insider reports Robertson is the “father” to more than 40 Tiger cubs (including Coleman).
Both gurus have shown an ability to generate outsized returns, subsequently attracting investment capital at an exponential rate. In Robertson’s case, he could not maintain his gains, but did become a highly-regarded voice by mentoring so many young hedge fund founders and managers. As for Coleman, will he continue to hold his gains or will they slip away, as they did with Robertson?
What is Tiger Global Management?
The firm describes itself as an investment advisor in its Form ADV Part 2A filing.
It operates a hedge fund, a long opportunities fund and private equity funds. They are designed for sophisticated and institutional investors. As of Sept. 30, it held $23.6 billion of client assets under management (according to its Form ADV).
Robertson is listed as one of the board members and as senior member of the advisory board for Tiger Infrastructure Partners. A crunchbase.com profile shows two partners (in addition to Coleman): Scott Shleifer and Lee Fixel. The Wall Street Journal reports key investment manager Feroz Dewan resigned in 2015 to start his own firm. Dewan, who had been with Tiger 12 years, had run a $6 billion fund and co-managed the long-only fund.
Strategies and processes
Robertson is described as a macro trader, one who kept up on global trends but mostly rejected fundamental analysis. He is quoted as being focused on a "smart idea, grounded on exhaustive research, followed by a big bet." Nathan Reiff, writing for Investopedia, says Robertson's philosophy was called highly personal and difficult for average investors to follow. He adds that perhaps a lack of clarity and "hard-and-fast" rules may have contributed to Robertson’s downfall.
The biggest drag on his late 1990s performance was a decision to avoid tech stocks; clients disagreed, and assets dropped from $23 billion to $6 billion by 2000.
Ironically, Coleman did not share Robertson’s aversion to tech stocks. An Institutional Investor article leads off this way, “No hedge fund firm is as equally committed to public and private technology investments as Charles (“Chase”) Coleman III’s Tiger Global Management.”
According to the Form ADV Part 2A, Coleman’s firm uses "a variety of methods and strategies" in its objective of generating superior long-term, risk-adjusted capital gains. It divides its efforts into two categories:
- Public Equity Investments: Starts with fundamentals to find long and short opportunities across all sectors and geographic regions. Candidates that make it through this initial screen go through an intensive due diligence process, one that involves internal and external research, as well as yet more fundamental analysis. In addition, staff members devote a "significant" amount of time modeling and performing valuation analyses on potential candidates as well as existing holdings.
- Private Equity Investments: The same starting procedures as above, but in this category they like to invest in sectors that have strong, long-term secular growth fundamentals. Again, there is intensive due diligence through fundamental analysis and market research. Staff try to develop a deep understanding of local markets, business models and secular themes.
The Institutional Investor article says the goal of the public fund is to purchase “well-positioned” companies that have low multiples of future free cash flow. On the shorting side, it looks for “poorly-positioned” companies that have high multiples of future free cash flow.
On the private side, it is said to look for companies with sustainable moats that can be purchased at favorable multiples of expected future cash flow.
Underlining the dominance of technology is this Institutional Investor reference, “...since 2003, Tiger Global has invested 90 percent of the capital raised in its nine private funds in Internet, software and fintech companies.” More specifically, Coleman believes the most powerful secular theme at this time is the development of “cheaper, faster and more powerful mobile devices.”
Robertson seems to have run aground because he did not like the tech bubble of the 1990s, but also failed to profit from its bursting, as many other gurus did. That and a combination of what sounds like questionable management practices and an unsuitable temperament for working with teams. Coleman, on the other hand, has done very well by embracing the tech sector, and no doubt adapting his tactics as it shifts one way and another.
Holdings
This sectoral profile shows consumer cyclicals and technology topping the list at the end of the third quarter:
Also from GuruFocus, the top 10 equity holdings in Coleman’s portfolio:
- The Priceline Group Inc. (PCLN, Financial): 12.93%
- JD.com Inc. (JD, Financial): 12.72%
- Amazon.com Inc. (AMZN, Financial): 10.03%
- Apollo Global Management LLC Class A (APO, Financial): 6.95%
- Despegar.com Corp. (DESP, Financial): 6.56%
- TransDigm Group Inc. (TDG, Financial): 5.65%
- Alibaba Group Holding Ltd. ADR (BABA, Financial): 5.32%
- Microsoft Corp. (MSFT, Financial): 5.30%
- Netflix Inc. (NFLX, Financial): 3.76%
- Domino's Pizza Inc. (DPZ, Financial): 3.14%
Reports of Coleman and Tiger Global being heavily biased toward technology were certainly true at the end of September, with many powerful and well-known names in the top 10.
Performance
As with hedge funds generally, there are no routine reports on performance by Robertson and Coleman; instead, we work with fragments gathered here and there.
We have already touched on his slippage leading up to the dot-com crash, but during the 1980s and first half of the 90s, Robertson was known as the “Wizard of Wall Street.” The compounded rate of return during those glory years is reported by Investopedia as averaging 32% per year. When he reached $23 billion in assets under management, he was owner of the largest hedge fund in the world for several years.
Investopedia also reports Coleman's strategies remained successful (through to the article’s March 2016 publication date), and his hedge fund has been one of the best in the past several decades. It adds he had an average annualized return of more than 40% from 2001 through 2007, slumped in 2008 and 2009, then went on to 45% in 2011 and 23% in 2012.
According to TipRanks, Coleman's portfolio gained 92.3% between June 2013 and Nov. 29, and his average annual return over the past three years was 16.31%. While those seem like good numbers, they are reasonable but not outstanding in context, as this chart from TipRanks shows:
Note that over the five-year term on the chart, Tiger Global returned 12% less than the S&P 500, while beating his peer group. Also from the TipRanks profile, the portfolio's total value is larger than 99% of other hedge funds.
Robertson really did earn the "Wizard of Wall Street" nickname over the first 15 years of his firm’s history. Coleman has managed his first 15 years well, but not so spectacularly as Robertson. Regardless, Coleman continues to operate a viable business.
Conclusion
Robertson was undoubtedly a good teacher and Coleman was undoubtedly a good student. Between the two of them, they have almost 40 years of above-average returns.
Still, as the chart above shows, Coleman is doing almost as well as the S&P 500. And perhaps that is not good enough for some of the professional investors who are Coleman’s clients—why go through all the trouble and expense of working with a hedge fund when it is not beating the benchmark?
Perhaps that reference to a “viable” business I made is a bit premature. Given the huge gains made by some tech stocks in the past decade, why are his returns not higher?
Disclosure: I do not own shares in any of the companies listed in this article, nor to I expect to buy any in the next 72 hours.
