Coleman's Tiger Says It Needs New Ideas as Trades Crowded

  • Losses on top stocks led to 22% drop in `very poor' quarter
  • `Next multibagger long' may by obscure, clients told in letter

Chase Coleman’s Tiger Global Management hedge fund, after losing 22 percent in the first quarter, said too many competitors are crowded into its biggest holdings and conceded it needs to dig up new ideas to revive returns.

Tiger Global’s stakes in Inc., Netflix Inc. and Inc. -- its three biggest public equity positions at the end of the last year -- soured in the first three months of 2016, all sliding more than 10 percent. The losses contributed to “a very poor first quarter,” according to an April 29 letter to investors obtained by Bloomberg. Other hedge funds that held stakes in those stocks at the end of 2015 include AQR Capital Management, Coatue Management, and Arrowstreet Capital.

“We acknowledge that many of the companies discussed in this letter have large market capitalizations and are owned by many other funds,” the investment management team wrote. “We are acutely aware that the next multibagger long may be a company we do not know of today, and to continue compounding at the rates we have in the past, we will need to source new, asymmetric investment opportunities.”

Since its inception in 2001, Tiger Global has made an annualized net return of 18.5 percent, according to the letter. The consumer Internet sector represents about a third of the fund’s equity positions and is Tiger Global’s “highest conviction long theme.”

Selloff Risk

The risk of owning a stock with a heavy concentration of hedge fund ownership is that it may be sold rapidly when funds hit tough times. Hedge fund managers own 20 percent of the outstanding shares of and 14 percent of Netflix, according to the latest filing data compiled by Bloomberg. The funds’ Amazon ownership has risen to 4.5 percent from 2.6 percent a year ago.

Several of Tiger Global’s short positions exacerbated losses in the first quarter as those shares rallied, the firm said. Still, the company continues to see short opportunities in retail, consumer, technology and “frauds and fads.” After recent market swings, it increased its “exposure in several ideas as the reward-to-risk ratio has improved.”

Tiger Global, which runs hedge fund, private equity and long-only stock strategies, was started by Coleman, a former technology analyst at Julian Robertson’s Tiger Management. Scott Shleifer, who co-ran the company’s private equity business, was named head of public equity investing last year.

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