When John Thaler recently announced he was shutting down JAT Capital Management, his long-short hedge fund firm, it marked at least the fifth firm with ties to Tiger Management Corp. to close since the start of 2014.
Three of the five were original firms seeded by legendary investor Julian Robertson Jr. — Bill Hwang’s Tiger Asia Management; Patrick McCormack’s Tiger Consumer Management; and TigerShark Management, co-founded by Thomas Facciola and Michael Sears. A fourth, Joho Capital, is a Tiger Cub. JAT, the fifth, is a Tiger Grandcub.
The recent spate of closings began in early 2014, when Robert Karr announced he would shut down Joho Capital in early 2014.
Thaler, in a client letter earlier this week, said he was closing JAT because he wanted to spend more time with family after nearly 20 years in the investment business, the last eight at JAT. “It is the right moment to take a break, spend time with my young family and determine which path to pursue next,” said the JAT client letter, obtained by Alpha. JAT is managing $1.7 billion.
Thaler is considered a Tiger Grandcub because he earlier worked for Tiger Cub Chris Shumway, who closed down his firm, Shumway Capital Partners, in early 2011.
Thaler enjoyed a sort of feast-or-famine record at JAT. He was up by double digits in every one of his profitable years. However, they were mixed in with losses of 11.3 percent in 2014 and 19.6 percent in 2012.
JAT was down 0.9 percent in its first two months of operation in 2007 and 6.6 percent in 2008, its first full year. But remember, those years were part of an historic bear market that claimed even bigger losses for most of JAT’s rivals.
Why have five Tiger-related funds folded their tents in the past 16 or so months? There are several theories.
First, there are some unique situations. For example, Hwang closed Tiger Asia in early 2011 after being sanctioned for admitting to using insider information on Chinese bank stock in Hong Kong and other jurisdictions.
Karr said he shut his New York–based Joho to spend more time with his children, stressing that he had been considering the move for several years. “Since the financial crisis, solid returns have been more challenging, but with a strong 2013, I feel now is the time,” he wrote to clients. In 2013 the firm’s Joho Partners and Joho Fund gained 30.3 percent net of fees, which Karr called one of the best in the firm’s history.
Joho had a total of $4.9 billion in its long-short hedge funds and another $243 million in long-only funds.
TigerShark and Tiger Consumer were hit by outflows. TigerShark returned what amounted to only $100 million or so to clients, a paltry sum given its 14-year history, while Tiger Consumer was managing $2.2 billion at the end of 2013. By the end of last year, its U.S. stock portfolio had a little less than $1.4 billion.
Several of the firms to close underscore the difficulty among many of the 50 or so firms with some connection to Tiger Management to break into the ranks of the largest hedge fund firms. Several surveys in recent years have concluded that a majority of new hedge fund money has been flowing to firms with more than $5 billion under management.
In the first quarter alone, a little more than two thirds of capital flowed to firms with more than $5 billion while the bulk of the rest of the money went to firms with $1 billion to $5 billion, according to industry tracker Hedge Fund Research.
However, according to Alpha’s latest Hedge Fund 100 ranking, which is about to be published, just seven firms with roots in Tiger were able to crack the top 100 list. Two of them rank among the top ten — Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine Capital and O. Andreas Halvorsen’s Greenwich, Connecticut–based Viking Global Investors.
As we point out in the Hedge Fund 100, the top firms have grown assets by nearly 23 percent and now account for more than half of industry-wide assets. The total assets of the ten largest firms now account for more than 14 percent of total industry-wide assets.
Instead, a large number of Tiger Cubs, Seeds and Grandcubs seem to bunch in the $1.5 billion to $2.5 billion range.
Granted, several of them are sector funds, like Tiger Consumer and even JAT, which specializes in technology, media, Internet and telecommunications stocks. So, you would not expect these kinds of funds to grow too large.
Another issue lurking beneath the surface is that many of the Tiger funds noted for their long-short strategies that they learned under Robertson have been struggling with their shorts as the bull market enjoys its seventh year, a trend I have chronicled several times in recent months.
In fact, frustrations over shorting have been a familiar theme among the recent quarterly letters sent by a number of Tiger Cubs, Seeds and Grandcubs and obtained by Alpha.
Thaler’s experience is a good example. According to his July 2013 report — granted, a snapshot of one point in time — JAT’s longs were up an impressive 38.2 percent, but this gain was offset by an 18.6 percent loss in the short book. This has become a typical experience for many Tiger-related long-short managers.
Experts say that large sums flowing into long-short hedge funds have crowded out the best trades. They say there is a lot more capacity for their favorite longs than for their best shorts.
Also, as the hedge fund industry has become more institutionalized, investors are not as patient with wide swings in performance, even if the good years are outstanding.
And besides, it’s not as if nearly all these hedge fund managers can’t afford to take some time away from the rigors of investing.
