Tuesday, March 11, 2014

Tiger Fund Burning Bright?

Matthew Goldstein of the New York Times reports, For a Hedge Fund Pioneer, a Tiger Fund Burning Bright:
Julian Robertson, the billionaire investor and an early pioneer of the hedge fund industry, is again proving to be a top picker of new talent.

His $450 million Tiger Accelerator Fund, which invests in six hedge funds that Mr. Robertson personally has invested in, is up 22.6 percent net of fees as of Dec. 15, according to a person briefed on the matter. By comparison, the broadest hedge fund industry index is up just about 9 percent for the year.

Mr. Robertson began the Tiger Accelerator Fund in 2011, marking a return to the hedge fund industry after shuttering his Tiger Management fund in 2000. Tiger Management, with $22 billion at its peak, once was one of the industry’s largest funds and delivered annual returns of nearly 30 percent before slumping in 1999 and 2000.

Mr. Robertson helped start the careers of a number of notable hedge fund managers including Chase Coleman of Tiger Global, Lee Ainslie of Maverick Capital and Andreas Halvorsen of Viking Global Investors.

Overall, Mr. Roberston has provided seed capital or early investment money to about 40 hedge funds. In the hedge fund world, funds that either have received investment money from Mr. Robertson or were founded by traders who once worked for him are sometimes referred to as Tiger cubs.

The six hedge funds that the Tiger Accelerator Fund’s performance tracks are Tiger Veda Globa, Cascabel, Long Oar Global, Tiger Eye, Tiger Ratan and Teewinot. The Accelerator fund’s $450 million investment is on top of the roughly $230 million Mr. Robertson committed of his own money to those funds.

Unlike other seeder funds that tend to commit money to new funds with a relatively short track record, the Accelerator fund selected six funds that had several years of operation behind them. Mr. Robertson tapped the services of Morgan Stanley to market his seeder fund to investors, which raised most of its money during the first-half of 2011.
There is no doubt about it, Julian Robertson sure knows how to pick hedge fund winners, many of which I track every quarter. The performance of his Tiger Accelerator Fund is nothing short of spectacular, but hardly surprising to me because as I keep repeating on this blog, most hedge funds stink. It's a very competitive space and only the best of the best are able to survive in this cutthroat environment.

But the article above should also serve as a warning to many institutional investors who are all investing in the same brand name funds. If you can't beat Julian Robertson, you should try to emulate him and seed talented hedge fund managers (Note: Robertson's fund isn't really a seeding fund, it's an accelerator fund, as its name implies).

Following my comment on promoting Quebec's hedge funds, I received this feedback from a former employee of HR Strategies, the fund of funds responsible for seeding Quebec hedge funds on behalf of the Caisse, the FTQ and Fondaction (they manage the SARA Fund):
While not all institutional investors in Quebec invest in local managers, some of them do, otherwise, the SARA fund would not exist.

Perhaps there is a fundamental reason for these managers not getting any traction. Perhaps they are simply not good and no one wants to associated with them.

When this mandate came about at HR Strategies, we were tasked to meet with every single one of them. But we were also tasked to be much more tolerant and to relax our manager selection criteria quite a bit. We must have had over five lengthy meetings and analyzed the performance in details of everyone who was kind enough to provide.
Yet even if we had put the bar much lower, the bottom line is that we concluded that the probability of any of them delivering sustainable positive alpha was close to 0. And when you factor in the fixed cost of setting up and operating very small funds, it wasn't hard to see that the obstacles to success were great.

But the clients were aware of it. And they decide to go ahead anyways hoping that one of them would turn out to be the next Hexavest.

Many of the funds you mention and that you have talked about in prior posts were deemed fatally flawed or their strategies so simplistic that they could be in sourced for a fraction of the costs.

We helped some of them who were helpless from a marketing or operational standpoint to get their standards up. We gave them concrete example of successful business models south of the border but found them more arrogant and stubborn than some of the multi-billion success stories we have come across over the years.

Somehow, I still hope that SARA works because the guys that are left at HR Strategies are giving it everything they can and if they disappear, that will truly be the end of Quebec's alternative investing experience.
Unfortunately, HR Strategies is struggling just like most funds of funds charging an extra layer of fees to invest in hedge funds. I predicted the demise of funds of funds years ago but I still see a role for top funds of funds, especially in seeding new talent. The problem nowadays is that it's next to impossible to start a hedge fund, and those that do get seeded typically don't survive after three years in operation.

And the person who sent me this comment is right, most Quebec hedge funds stink. Most hedge funds stink. Period. I got caught up in all the hoopla of helping Quebec hedge fund managers and personally tried to seed a few of them (yet the guys I helped never gave me a dime for my effort, cheap asses!).

But I still stick to my comments that Quebec's "powerful" financial institutions and billionaire families are not doing enough to support and encourage home grown talent start their own money management outfits. Montreal's financial community is dying and unless the "powers that be" wake up and smell the coffee, it will get worse. In my humble opinion, it's already too late, we're way behind New York, London, Chicago and Toronto (la petite mentalité québécoise).

Anyways, I'm done shilling for Quebec hedge funds. If they want to compete with the best of the best in the world, they have to post the numbers and prove they've got what it takes not only to deliver alpha, but to run a successful operation.

Below, Skybridge Capital Partner Troy Gayeski discusses hedge funds on Bloomberg Television's "Bloomberg Surveillance.” Retail investors shouldn't invest in hedge funds. They're better off investing in the GURU ETF and focusing on the quarterly activity of top funds.