Top Hedge Fund Returns 45% With Robertson's 36-Year-Old Disciple
Charles Payson Coleman III, known as Chase, is as close as one gets to American aristocracy.
A descendent of Peter Stuyvesant, the last Dutch governor of New York, Coleman was raised in Glen Head, a posh enclave on New York’s Long Island. He went to Deerfield Academy in Massachusetts and then, like his father and grandfather, attended Williams College, where he played lacrosse. He graduated in 1997 and went to work as a technology analyst for Julian Robertson, a godfather of the hedge-fund industry, at Tiger Management LLC, Bloomberg Markets reports in its February issue.
Coleman had a connection at Tiger. He had grown up with Robertson’s son, Spencer, who lived in nearby Locust Valley.
Soon after Robertson, 79, closed his fund in 2000, he handed his son’s former playmate more than $25 million to manage. Coleman was 25 at the time. That made him one of at least 30 so-called Tiger cubs -- fund managers who are Tiger Management alumni. There are another 40-odd so-called Tiger seeds -- funds backed by Robertson dollars.
Coleman and his Tiger Global LP, along with a half dozen others, are both.
Chase Coleman has been handed a lot in his life, and he’s made good with the gifts. He took his Robertson stake and built a $10 billion firm, partly by investing in Internet companies before they sold shares to the public. These days, he owns, among other things, a stake of undisclosed size in social networking phenomenon Facebook Inc. and another in Zynga Inc. (ZNGA), creator of the Mafia Wars and FarmVille online games.
Zynga raised more than $1 billion in a Dec. 15 initial public offering.
Coleman’s flagship $6 billion Tiger Global fund returned 45 percent in the first 10 months of 2011, putting it at the top of the Bloomberg Markets list of the 100 best-performing hedge funds managing $1 billion or more. He manages the fund with Feroz Dewan, a Princeton University-educated engineer and mathematician.
“I have known Chase since he was a small boy,” Robertson wrote in a statement. “He’s a great competitor and an immensely gifted portfolio manager. I would always bet on Chase.”
Joining the Tiger team takes more than good breeding and connections. Robertson used to give prospective hires a written test to gauge their intelligence, competitiveness and ability to work on a team. Tiger Management, which still exists to invest money for Robertson’s family and a few outsiders, uses a similar exam to find managers to seed, a person familiar with the test says.
Tiger cubs learned at the right hand of Robertson, who vetted almost every idea before it became a trade, the person says. Robertson prized on-site research and once sent a commodity analyst to Brazil to estimate the number of coffee bushes under cultivation in the eastern state of Bahia before betting that the commodity’s price would decline.
Most of the Tiger seeds are housed in Tiger Management’s offices on the 47th and 48th floors of 101 Park Ave. in midtown Manhattan. Robertson is the landlord, charging each fund rent. He also takes an ownership stake, which entitles him to a cut of the hefty fees that hedge-fund managers charge investors.
Managers of the seed funds meet periodically to discuss ideas, says a person familiar with the meetings. Robertson also encourages managers to share their wealth through the Tiger Foundation, which gives money to organizations helping needy families in New York.
In topping the Bloomberg Markets ranking, Coleman, 36, beat such veterans as Peter Brown and Robert Mercer, two former International Business Machines Corp. language recognition specialists who are co-chief executive officers of Renaissance Technologies LLC. Renaissance Institutional Equities is No. 2 among large funds.
The $7 billion fund returned 33.1 percent for the 10 months. The East Setauket, New York-based firm is famed for its quantitative Medallion Fund, now run almost exclusively for employees, which returned more than 35 percent annualized over a 20-year span.
Renaissance founder Jim Simons, who is a former code breaker and head of Stony Brook University’s math department, remains chairman of the firm. In December, the school announced that Simons, together with his wife and the Simons Foundation, had given $150 million to the school, the largest donation in the history of the State University of New York, of which Stony Brook is a part.
Dalio Most Profitable
Bridgewater Associates’ Ray Dalio, who runs the largest hedge fund firm, had the No. 3 fund, Pure Alpha II, which ran up a 23.5 percent gain. Dalio has three funds in the top 12, and his $53 billion Pure Alpha II fund is also the most profitable, earning $2.48 billion for its managers in 2011 through Oct. 31, according to Bloomberg data.
Ken Griffin’s Citadel fund, with a 17.7 percent return, was the second most profitable, at $2.1 billion.
Last year’s No. 1 fund, Don Brownstein’s Structured Servicing Holdings LP, rose 13.5 percent and is ranked No. 17, after gaining 51 percent in 2010. His firm, Structured Portfolio Management LLC, had a second fund in the large-fund list, SPM Core, at No. 13, with a 15.7 percent return, plus two funds in the top 20 of the Bloomberg Markets ranking of the top 50 mid-size funds.
Coleman, Brownstein and Dalio earned their double-digit returns during a generally abysmal year for the hedge-fund industry. Just 21 of the top 100 funds scored returns of more than 10 percent in 2011.
Average Fund Drops
Hedge-fund managers, among the highest-paid workers on Wall Street, saw their funds fall an average of 2.8 percent through Oct. 31, according to Bloomberg data. A Bloomberg index of U.S. Treasury notes and bonds returned 8.5 percent, besting all but the top 26 hedge funds in the Bloomberg Markets ranking.
Even the anemic Standard & Poor’s 500 Index (SPX), which returned 1.3 percent, including dividends, beat the average hedge fund.
Some big names flamed out in 2011. John Paulson, who made billions betting against mortgage securities in 2007, lost 44 percent through October in his flagship Advantage Plus fund.
Other titans that tripped: James Dinan’s York Investment Ltd., down 7 percent; Leon Cooperman’s Omega Overseas Partners, off 3 percent; and London-based William de Winton’s Lansdowne Global Financials fund, which plunged 17 percent.
The results show that the golden age for hedge funds is over, says Brad Alford, head of Alpha Capital Management in Atlanta, whose two mutual funds have outperformed the average hedge fund return this year.
“In difficult markets, investors expect that hedge funds will protect their capital,” Alford says. “Now we see that they aren’t smarter than anyone else.”
Coleman’s Tiger Global bucked the gloomy trend partly by behaving as much like a venture capital fund as a hedge fund. Coleman uses a group of private-equity funds to buy into private companies, according to filings with the U.S. Securities and Exchange Commission. The hedge fund gets some of the investments.
Coleman declined to be interviewed for this story, says Carolyn Sargent, a Tiger spokeswoman.
As of December, Tiger Global owned 4.8 million shares -- both Class A and Class B -- of LinkedIn Corp. (LNKD), the professional-networking site that sold shares in May. Tiger got at least 930,000 of those shares for $21.50 in mid-2010, a year before the company went public, according to a person familiar with the purchase.
Shares of Mountain View, California-based LinkedIn traded at $63.55 on Jan. 9.
Coleman also bought pre-IPO shares of Yandex NV (YNDX), Russia’s most popular search engine, which did a $1.3 billion IPO in May. Tiger Global owned 54.1 million of its New York-listed shares, or 38 percent of the Netherlands-based company, as of Sept. 30, a stake it acquired before the IPO.
Mail.ru Group (61HE) Ltd., another Russian Web portal, went public in London in November 2010, raising $1 billion. Tiger owned 10.8 million shares before the sale and unloaded about half of them in the IPO.
Like Robertson, Coleman is skilled at finding both good stocks to buy and dogs to bet against, according to investors. In 2011, Coleman made much of his profit shorting stocks that fell, investors say.
Coleman’s fund is one of three Tiger cubs that made the top 25 in the Bloomberg Markets ranking. Philippe Laffont’s New York-based Coatue Management LLC ranked No. 10, with a return of 16.9 percent. Laffont, who worked for Robertson at Tiger before starting Coatue in 1999, also invests in technology. Apple Inc., Google Inc. and mobile-phone-chip maker Qualcomm Inc. were among his largest holdings as of Sept. 30.
New York-based Tiger Asia Management LLC, managed by Bill Hwang, ranked No. 24, with a return of 8.6 percent. Hwang, like Coleman, worked for Robertson and then got seed money from him. In 2011, Hwang bet on a decline in Chinese shares, according to people familiar with his portfolio. It was a good call. The Shanghai Stock Exchange Composite Index (SHCOMP) was down 12 percent in the first 10 months of 2011, after a loss of 14 percent in 2010.
The Tiger diaspora is large and growing. John Thaler, founder of JAT Capital Management LP, worked with Tiger Management alumnus Chris Shumway for five years, learning Robertson’s methods secondhand. JAT Capital Offshore Ltd. was No. 3 on the Bloomberg Markets list at the end of September, with a 30-plus percent return, when a rally in U.S. stocks lifted shares that Thaler had expected to fall, a person familiar with the fund says.
JAT ended up with a 12.7 percent gain and a No. 19 ranking.
Coleman & Co. are restoring the luster to the Tiger name. Robertson’s funds notched average annual returns of 32 percent from 1980 to Aug. 31, 1998. They were then tarnished when he made a series of bad currency bets. He lost $600 million when Russia defaulted on its debt and devalued the ruble. Tiger Management funds overall hemorrhaged about $2 billion on Oct. 7, 1998, when the dollar suffered its biggest one-day loss against the yen since 1973.
Unsentimental Tiger investors asked for their money back and, coupled with losses, cut Robertson’s assets under management to $6 billion from $22 billion in just 18 months.
Robertson returned all investor money in 2000 and went south to build and operate golf courses in New Zealand, where he spends six months of every year.
Robertson, a canny stock picker, was more aggressive than most in shorting stocks he thought were doomed to fall, former investors say. In a short sale, a trader borrows shares and sells them, hoping to buy them back at a lower price, return the shares to the lender and pocket the difference.
“Julian always doubled up,” says Mark Yusko, CEO of Morgan Creek Capital Management LLC in Chapel Hill, North Carolina, which invested in Tiger Management and is an investor in Tiger Global. “When a short was going down, he pressed it, and when a long was going up, he pressed it.”
Coleman is pressing his bet on private technology companies. Last year, he asked investors for permission to lift them to 15 percent of the fund from 10 percent, one investor says.
Yuri Milner, the Russian entrepreneur who started Mail.ru and bought a $200 million stake in Facebook in May 2009, just before Tiger Global, says Coleman is “a visionary guy. I have learned a lot from Tiger.”
One lesson: Go global. Many of Tiger’s private investments are in Brazil, China and India, and many of those are similar to what has worked in the U.S.: social-networking, shopping and Groupon Inc.-like deal sites. As of mid-December, Tiger Global owned stakes in Peixe Urbano, a Brazilian deal site similar to Groupon; MakeMyTrip Ltd., an Indian online travel site; and Vostu, a Brazilian video-game portal.
Coleman has taken his biggest hits in the broader market. His worst years were 2008, when he lost 26 percent, and 2009.
“Chase got whacked in the head with a two-by-four in 2009,” Yusko says.
Coleman was short financial stocks and mortgage companies because his research told him they were money losers, Yusko says. Then the government banned short selling in many stocks and bailed out the banks. Tiger Global ended the year up just 1 percent.
That same year, by contrast, David Tepper’s Appaloosa Investment LP I gained 117 percent through September buying bank stocks and bonds and was No. 1 in the Bloomberg Markets large-fund ranking.
‘Chase is Done’
“There were folks in 2009 who said Chase is done, he’s gotten too big and he’s lost his nerve,” Yusko says.
Yusko visited Coleman in Tiger Global’s offices, and Coleman told him he had decided to refocus his investing where he had an edge: in technology. He would lighten up on finance, an industry susceptible to government meddling.
“I admire him for that decision,” Yusko says.
Coleman supports Republican political candidates who take a dim view of regulation. He gave $30,800 to the National Republican Senatorial Committee on May 24, according to the Washington-based Center for Responsive Politics. He also gave at least $5,000 to Republican presidential candidate Mitt Romney.
Coleman’s roots are more Nelson Rockefeller than Sarah Palin. His paternal grandmother, born Louise Stuyvesant Wainwright and known as Mimi, was a trustee of Hofstra University in Hempstead, New York, where she helped establish a law school, according to her 1996 New York Times obituary. She was also chairwoman of Planned Parenthood of New York City.
Coleman’s father, Charles Payson Coleman Jr., is a partner at corporate law firm Pillsbury Winthrop Shaw Pittman LLP in New York, where his main clients are airlines. Chase’s mother, Kim, owns an interior design firm.
In 2005, Coleman married Stephanie Ercklentz, one of 10 scions featured in the 2003 documentary “Born Rich,” made by Johnson & Johnson heir Jamie Johnson. He interviewed his friends for the film. Stephanie’s grandfather, Enno Ercklentz, was a German banker who became a chemical magnate after moving to the U.S. in 1926, according to his 1987 New York Times obituary.
In the film, Stephanie said she had never dated outside her plutocratic social circle.
“I would, but he’d have to understand the fact that I love going shopping,” she says on camera. “Some guy might get mad at me for being stupid and spending all this money for, like, a Gucci purse.”
The couple was married in the Church of Bethesda-by-the-Sea in Palm Beach, Florida. Photos from the ceremony and reception were splashed on the New York Social Diary, a website that chronicles the doings of the 1 percent.
In 2008, the Colemans paid $36.5 million for two apartments in a building on Fifth Avenue in Manhattan. The seller was Veronica Hearst, widow of Randolph Hearst, son of newspaper titan William Randolph Hearst, property records show.
Coleman started working at Tiger after graduating from Williams. When Robertson closed his funds, Coleman was among the first managers whom Robertson seeded with cash, along with Tiger Asia and Tiger Consumer, a person familiar with the matter says.
Coleman called his fund company Tiger Technology Management. He changed the name to Tiger Global in 2005 before making his ill-fated plays on non-technology companies.
Tech entrepreneurs praise Coleman for his willingness to make quick decisions about large investments. Ilja Laurs, founder of San Mateo, California-based GetJar Inc., a site that distributes applications for mobile phones, says Tiger studied his company for less than a month before putting up most of a $25 million funding round in February.
“That was a total surprise because I didn’t think any investor was capable of moving that fast,” Laurs says.
Investing with Accel
Tiger Global was confident in GetJar partly because Accel Partners, an early investor in Facebook, had already bought in, Laurs says. Tiger has followed or invested alongside Accel in at least six companies.
Kevin Hartz, co-founder of Eventbrite Inc., a San Francisco startup that lets promoters of concerts and other events publicize shows, register attendees and sell tickets online, says Coleman and his crew are no less skilled at finding promising startups than the venture capitalists on Sand Hill Road in Menlo Park, California. Tiger Global in May stumped up the biggest portion of a $50 million investment in Eventbrite.
“During the great downturn and dot-com crash, they were aggressively following a thesis that the consumer Internet was going to grow and that an enormous part of that would happen outside the U.S.,” Hartz says. “They were absolutely right.”
Investing in startups is risky because many have untested business models and well-funded rivals, says Peter Sims, a former venture capitalist and author of “Little Bets: How Breakthrough Ideas Emerge From Small Discoveries” (Free Press, 2011).
“Tiger is aggressive,” Sims says. “This is a cyclical market, and they could get burned easily.”
New York-listed Yandex traded at $18.73 on Jan. 9, down from its May IPO price of $25.
Mail.ru fell 14 percent in the first 11 months of 2011, dropping in November after a ban on divesting the shares expired, freeing Tiger and other pre-IPO investors to sell.
Tiger Global is also the biggest holder of Beijing-based E-Commerce China Dangdang Inc. (DANG), China’s largest online bookseller, with 4.4 million shares as of Sept. 30, according to SEC filings. Shares of New York-listed Dangdang traded at $4.97 on Jan. 9, down 70 percent from the $16 at which it first sold shares in December 2010. In August, the company said it lost 6 cents a share in the second quarter of 2011, triple the 2 cent loss forecast by analysts.
Declines aside, Coleman is a force in the VC community, says Brian Sharples, CEO of HomeAway (AWAY) Inc., which owns VRBO.com and other sites that list vacation homes for rent. Tiger invested $50 million in HomeAway before its June IPO and then bought shares afterward, Sharples says.
Coleman’s investment gave Sharples the opportunity to attend the annual Tiger Global Internet Conference, where the hedge fund’s corporate flock gathers once a year. The 2011 conference was at the Mandarin Oriental hotel in New York in October.
“I’ll bet more than 50 percent of the people there were from out of the country,” Sharples says. “Tiger Global’s network is so powerful now that just being able to go to that thing is a cool advantage of being part of their portfolio.”
A member of the old boys network by birth, Chase Coleman has forged a new one from the band of Internet startups that have earned millions for his investors.
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