What Really Killed Robertson's Tiger
When the fat lady sang for Julian H. Robertson Jr. and his renowned Tiger Management hedge-fund group, it came much faster than anybody anticipated. At yearend, Tiger analysts were told that the end was looming if mounting losses weren't reversed. But the funds were supposed to have at least eight months to live (BW--Mar. 13). In a letter to investors on Feb. 4, Robertson expected to turn things around. Yet again, in a letter to investors on Mar. 10, he bravely asserted that "the values in our portfolio are tremendous and eventually they will be recognized." And then, just days later, it was all over. On Mar. 30, Robertson announced that he was giving up the fight. Tiger Management was through.
Why was the end so abrupt? By Robertson's account, the decision to close Tiger only seemed sudden. He said he had grown disillusioned with the "irrational," high-tech-crazed markets. His explanation has been received sympathetically throughout the financial world. But a different, far grimmer story emerges from documents recently distributed to investors and obtained by Business Week. According to these documents, Robertson didn't close his funds after months of agonizing because he was upset with irrational markets. He shut the funds because the largest component of his empire, the Curacao-based Jaguar fund, was literally forced out of business--by investors who made the very rational decision to get out.
According to Tiger, investors requested nearly $1 billion in redemptions for all of Tiger's six funds, as of Mar. 31. It is not known how much of the redemptions were for Jaguar. However, according to a letter and supporting documents sent to Jaguar investors on Mar. 30, they were so gigantic that they would have reduced the number of Jaguar shares outstanding to less than 20% of authorized shares. A Tiger spokesman says Jaguar could have paid out redemptions and was not forced to liquidate, but a notice to investors says Jaguar was in a bind. It says that under Netherland Antilles law and Jaguar's articles of incorporation, "Jaguar is precluded from paying our March 31 redemptions." To "ensure that all shareholders are treated equally," the documents say, Jaguar was dissolved. The papers do not explain why it was necessary to shut the fund to treat shareholders "equally." Because their portfolios were managed in tandem, Jaguar could not have been liquidated without closing all of the funds.
Such was the stark reality of the last days of Julian Robertson as a force in the world markets. It was a sad, even squalid end to an investment record that, throughout the 1980s and early 1990s, was among the finest on Wall Street. But the fiasco at Jaguar is not the only blemish on Robertson's reputation. The volatile, 67-year-old North Carolinian may be facing even worse news. Dissatisfied investors in another of Robertson's funds, Ocelot, are raising grave questions about the management of that fund.
LOCKUP. Ocelot, with about $1.1 billion at its inception, was organized in mid-1997, when Robertson was still riding high. It was marketed by the asset-management arm of Donaldson, Lufkin & Jenrette Inc. Ocelot had a five-year "lockup" prohibiting investors from withdrawing their holdings any time before the middle of 2002 at the earliest.
The lockup ensured that investors were unable to withdraw their holdings once Robertson's funds began to collapse--an experience one Ocelot investor likens to "being chained to the deck of the Titanic." As Ocelot and the other Tiger funds tumbled 4% in 1998 and 19% in 1999, investors at Tiger generally--but not Ocelot--were able to pull out. The redemptions led to stock sales, which hurt Robertson's performance, which led to still further redemptions--a "death spiral," in the words of Mark W. Yusko, chief investment officer of the University of North Carolina at Chapel Hill, which is a longtime Jaguar investor.
Furious Ocelot investors say they got the worst of both possible worlds: lousy performance caused by redemptions elsewhere and no ability to bail out. Their worst fears were realized in a letter to Ocelot investors by Robertson on Sept. 16, 1999 (inset). In it, Robertson said Ocelot's "poor returns over the past year have been caused by having to liquidate positions to provide for liquidity to withdrawing investors" and to maintain appropriate leverage. For Ocelot investors, the red flag was the phrase "withdrawing investors." Since they could not redeem their shares, this obviously referred to other funds where withdrawals were allowed.
COMMINGLING ISSUE. Some Ocelot investors are upset that Ocelot's performance was evidently hurt by withdrawals at other Tiger funds. They have written WSW Capital, the DLJ subsidiary and Ocelot's general partner, asking if Robertson has been mingling Ocelot with other funds. The issue was also raised at the tense annual meeting of the Ocelot fund last Nov. 1. Dr. Ramie A. Tritt, a Georgia physician and Ocelot investor, says he asked Robertson about the Sept. 16 letter, and that the fund manager testily conceded that Ocelot had sold shares. "His response was: `Well, you didn't want me to stay in those stocks, did you?'--which was different from what he says in his letter."
Tritt says Robertson's "confrontational" response confirmed his view that "the Ocelot fund people got the short end of the stick." Even if Robertson did not commingle funds, he says, it was plain that Robertson sold stocks from Ocelot at the same time that he sold the same stocks from other funds to meet redemptions in those funds. Indeed, an Oct. 1, 1999, letter to Tritt from WSW confirms that "each of the funds advised by the Tiger Advisers generally invests in parallel." The letter does not directly respond to a query from Tritt regarding commingling.
Tritt believes Robertson may have breached his fiduciary responsibility to Ocelot investors, and he is joining other Ocelot investors in exploring possible litigation against Robertson. Tritt's attorney, Atlanta lawyer A. Leigh Baier, confirmed that he has been "retained to look into it by several holders of Ocelot." A Robertson spokesman says Ocelot was managed strictly in accordance with the terms of the Ocelot offering documents. He declined to comment on the commingling allegation, which he described as "speculation." A spokesman for DLJ declined to comment.
The Ocelot mess was, in a sense, inevitable. When investors lose money, they get mad--and when they get mad, they sue. Threats of lawsuits, forced liquidations, excuses, and, above all, staggering losses: They're a sad end to the career of a man who once was the king of the Wall Street jungle.