| Andreas Halvorsen, Viking Global Investors (Bloomberg) |
Several Tiger Cubs and other fund managers with roots in Julian Robertson Jr.’s Tiger Management began 2015 with high hopes for making money from shorting stocks. After a six-year bull market, equities were becoming more volatile, investors were discriminating between good and bad companies, and the U.S. Federal Reserve was gearing up to raise interest rates. But now the Tiger scions are lamenting how difficult it is to bet on laggards.
“We would have been solidly profitable on our shorts had it not been for our borrow costs,” asserts the fourth-quarter letter of Charles (Chase) Coleman III’s Tiger Global Management. Coleman says the New York–based firm also lost money on “a few positions that appreciated significantly for what we believe to be non-financial reasons.”
A fourth-quarter letter from Andreas Halvorsen’s Viking Global Investors in Greenwich, Connecticut, says the Viking Global Equities strategy posted a 25.8 gross return last year from its long positions but took a 6.7 percent loss on its short bets. Most of the losses from the shorts were concentrated in health care, information technology and financials. The only sector in which Viking made money from its shorts was energy, mostly in the final four months of the year.
Christopher Hansen’s San Francisco–based Valiant Capital Management also lost money on its shorts last year. Hansen tells clients in his fourth-quarter letter that while his liquid fund was up 6.59 percent for the year, his longs contributed 16.24 percent and the shorts detracted by 3.77 percent. The fund, which tends to have a significant exposure to emerging markets, was especially hurt on the short side in the Middle East and Africa, India and to a lesser extent Brazil.
“While I believe the focus and quality of research on the short side continues to be very good as a whole (particularly in unearthing frauds), there is one clear area for improvement that has really been ‘exposed’ of late by the market’s continued ascent — the need to be more savvy about the non-fundamental aspect of our shorts,” Hansen tells clients.
Hound Partners’ Jonathan Auerbach tells investors that his New York–based fund was up 14.39 percent gross and 10.17 percent net of fees. However, its long equity portfolio was up 19.78 percent while the short portfolio lost 4.11 percent.“We think that some excess risk aversion is holding us back on the short side,” he writes. “We’re not generating high conviction shorts at the moment to fill the short book and have defaulted to a small amount of index shorts. Our plan going forward is for me to use even more discretion in sizing up shorts.”
