Tiger Global Management continues to rebound from its early-year woes.
The New York hedge fund firm founded by Tiger Cub Charles (Chase) Coleman III posted a strong 3.7 percent gain in July in its long-short hedge funds — collectively called Tiger Global Investments. As a result, the funds are now up a respectable 4.6 percent year to date.
It is not clear exactly what drove July results. However, according to its second-quarter letter, dated July 21 and obtained by Alpha, Tiger Global enjoyed gains in the June three-month period from both its longs and its shorts; the latter were a big reason for the funds’ poor first-quarter results.
Tiger Global’s hedge funds lost 5.5 percent in the first quarter but gained 5.7 percent in the second quarter. Tiger Global Long Opportunities — its onshore long-only fund — rose 3.8 percent in the first quarter but just 1.5 percent in the second, putting it up 5.4 percent for the first half. The offshore version advanced 2.1 percent in the second quarter and is up about 6 percent for the first six months.
Meanwhile, Tiger Global Internet Opportunities (TGIO) rose 10.6 percent in the first half of the year after posting gains of 5.8 percent and 4.6 percent in the first and second quarters, respectively. However, as we previously reported, the fund was merged into TGLO on July 1.
The firm offered investors the chance to redeem from TGIO and reopened the long-short and long-only funds to a limited amount of capital, which resulted in a net increase of about $200 million, according to the firm’s recent letter to clients.
The letter is the first published by Tiger Global, which is approaching its 15th anniversary, since the departure of Feroz Dewan, who had run the public funds — the long-short and long-only funds — on a day-to-day basis.
Scott Shleifer, who has been with the firm since 2002, became the head of Tiger Global’s public equity business on July 1. Lee Fixel took over as sole head of Tiger Global’s private equity business, a position he has shared with Shleifer since 2011.
In the second quarter the firm’s most profitable longs underscore Tiger Global’s worldwide reach: Naspers, a South African Internet company; Autohome, a Chinese auto-related Internet company; and JD.com, a Chinese electronic commerce company. All of these stocks “remain meaningful positions,” the firm told clients in the letter.
Altogether, Tiger Global’s longs are up 5 percent for the year through June.
Its shorts, meanwhile, performed well in the second quarter after losing 14 percent in the March period. They are now down just 4 percent for the first six months, according to the letter.
The letter also expanded on the firm’s pledge to better focus and “simplify” its business by emphasizing areas it believes its research “can yield a meaningful competitive advantage.” This means “several of the most prominent themes” in the long portfolio, such as Internet, software and technology companies, will likely increase “meaningfully in importance over time.”
The firm also stressed the importance of aligning its private portfolio of 120 companies within consumer Internet, software and financial technology with the public portfolio’s investment themes, “ensuring broad coordination across our organization’s research efforts.”
“Our belief is that a focused, aligned and simple investment strategy will help us maximize the returns we are capable of generating at Tiger Global,” the letter said.
In general, Tiger Global explained that its strategy is to buy well-positioned companies at low multiples of future free cash flow and short poorly positioned companies at high multiples of future free cash flow.
That said, it noted that given the firm’s recent management changes, it has increased its concentration on its favorite ideas, including online content giant Netflix, e-commerce companies JD.com and the Priceline Group, online classifieds companies Autohome and Naspers, financial technology firms FleetCor Technologies and MasterCard, and software company Tableau Software.
“The liquidity of the portfolio has improved dramatically over the past 12 months, making us more comfortable with our ability to adjust our exposure in the future if necessary,” the letter noted.
By the same token, the firm said it has “exited” most of its positions in media, cable and telecom, a favored strategy among the Tiger Cub crowd and Tiger Global for some time.
“We believe that as consumers continue shifting their time toward over-the-top content providers (i.e., Netflix) and other online video alternatives (i.e., YouTube), traditional media companies as well as the video and advertising revenue of cable providers will be under pressure,” the letter said. “We refer to cable and telecom companies internally as Internet services providers, given our belief that most of their value and future growth will come from providing high-speed broadband access.”
The firm said it prefers exposure to companies like Netflix “that benefit as the speed and ubiquity of Internet access increases and where the combination of good value to consumers and shrewd content investments drives rapidly increasing viewership.”
Tiger Global added, however, that it is more willing than ever to take large positions in the companies in which it invests. “Do not be surprised if you see our top 10 ideas increase as a percentage of equity, or if certain positions are larger as a percentage of equity than they have been historically,” it added.
