Tuesday, August 18, 2015
Julian Robertson's second dalliance with investors disappoints
For Julian Robertson, the 83-year-old billionaire former hedge fund manager, history is repeating itself.
In 2000, Robertson returned outside investors' money to focus on his own fortune. In 2010, he started taking money from outside investors again, but five years later, two of the three vehicles he set up have been unwound, while the third has shrunk as investors have pulled their money.
Robertson's personal fortune has more than doubled to $3.4 billion since 2000, and his Tiger Management is as strong as ever: the hedge funds he has ownership stakes in now manage more than $30 billion, up from about $20 billion in early 2010 and equal to highs in 2008 just before the financial crisis. But the small part of his empire devoted to outside fund management has been less successful, and he's unlikely to expand that business, people familiar with Tiger said.
Since 2000, Robertson has focused on giving start-up capital to hedge fund managers. After the financial crisis, many asset managers struggled to raise money from other investors, so Robertson decided to help raise money from outsiders for the hedge funds he had invested in. To do that, and ensure Tiger's success for the next generation, he promoted his son, Alex, to managing partner and brought in a trio of executives to help run and market the business.
He started three vehicles that in turn put money into funds he already backed. Two were essentially funds of hedge funds for state pensions in Pennsylvania and North Carolina. One, Tiger Accelerator, let investors share in Robertson's ownership stake in six firms that managed hedge funds, and invest directly in the six funds as well.
TAR HEEL PARTNERS
The North Carolina fund, created at the request of the state pension system, was called "Tiger Tar Heel Partners." It invested in two funds that Tiger had already backed: Tiger Consumer and Hound Partners, and the blended portfolio produced gains through June 2014. Tiger had hoped North Carolina would add to the $140 million it allocated in 2012, allowing Tiger Tar Heel to hire more fund managers, people familiar with the matter said.
But, in a previously undisclosed move, Tiger Tar Heel was dissolved this spring at Tiger's request. At about the same time, North Carolina decided as a matter of policy to invest directly in stock-focused hedge funds instead of through intermediaries, pension fund spokesman Schorr Johnson told Reuters. Investing in hedge funds directly can be less expensive as funds of hedge funds typically add an extra layer of cost, although Tiger did not charge such fees. Tiger indirectly benefited from having managers that it had seeded receive additional capital.
North Carolina's move followed the collapse in 2013 of Tiger Keystone Partners, a fund created at the request of the Pennsylvania State Employees' Retirement System. A small loss early on—mostly tied to a bad bullion-related bet by hedge fund Sun Valley Gold— prompted a pension board member to call for the state to get out, according to public comments reported by The Philadelphia Inquirer.
A political brouhaha ensued, and the pension's investment chief retired. The fund ultimately rebounded to a slight gain, but Tiger, frustrated with the experience, killed it, people familiar with the matter said.
Some investors have also bailed on Tiger Accelerator, a fund launched in June 2011 that allowed outsiders to invest in six funds already seeded by Tiger. Investors were also given stakes in the companies that managed the funds, a first for Tiger Management, which previously kept those stakes for itself.
Accelerator raised $450 million, most of it with the help of Morgan Stanley's far-flung clients in its wealth management network. Investors, including the St. Andrew's School in Middletown, Delaware, and the Bowana Foundation, a charitable vehicle for the founder of Boston Market and Einstein Bros. Bagels, committed to keeping their money tied up for two years and to pay as much as a 10 percent fee on returns if the fund performed well.
In 2011 and 2012, the fund performed better than indexes of hedge funds but worse than the Standard & Poor's 500.
Some investors were disappointed by the early returns and pulled out of the fund at their first chance in 2013.
Other investors pulled out money more selectively — the fund was designed to allow them to withdraw from some Tiger Accelerator funds while remaining in others. Investors have mostly left Cascabel Management and Long Oar Global Investors, laggards that have or plan to return significant capital to investors this year, but are staying in business, according to people familiar with the situation.
Assets stood at just $295 million as of April 30 this year, down from $464 million in November 2012, according to client reporting materials.
To be sure, some funds that Tiger Accelerator invested in turned out to be winners. Nehal Chopra's Ratan Capital Management and Ben Gambill's Tiger Eye Capital both produced several years of huge returns and dramatically increased their assets.
Investors in Tiger Accelerator received returns from two sources: the investments in actual hedge funds, and their partial ownership of the companies that managed the hedge funds. About $15 million has been paid out by Accelerator to investors from those partial stakes, people familiar with the matter said.
It's not the first time Robertson has faced withdrawals from impatient clients. In the late 1990s, he lost money as he avoided Internet stocks and focused on shares he thought were undervalued. Investors got tired of waiting for him to be right, and withdrew billions of dollars. Tiger’s assets under management sank to about $6 billion from as much as $22 billion before.
Soon after he closed the fund, the air hissed out of tech stocks. But Robertson had already moved on, giving startup capital to some of his former star analysts – often around $20 million each for a 20-percent to 25-percent stake in the business.
Tiger has seeded about 50 firms overall, not to be confused with Tiger "Cubs" — pre-2000 Tiger employees who have gone on to run some of the largest hedge funds in the world.
Seeding has helped Robertson's fortune rise to $3.4 billion from about $1.5 billion in 2000, according to Forbes and the Wall Street Journal. Robertson is an active philanthropist and his non-hedge fund investments include luxury hotels and land in New Zealand, where he spends a significant part of the year.
Industry experts including David Shukis, head of global investment services at Cambridge Associates, which helps pension funds pick hedge funds and manage their holdings, said investors often love picking stocks and funds, and view working with clients as more of a chore.
"It makes sense when managers who have already made a lot of money from fees say 'I don't need to do this anymore,'" Shukis said.
Posted by Bud Fox at 11:46 AM