| Chase Coleman, Tiger Global Management (photo credit: Amanda L. Gordon/Bloomberg) |
As we have recently reported, Tiger Global Management continues to rebound sharply from last year’s early losses in its hedge funds. Now, a number of documents obtained by Alpha provide some interesting insights into what has driven this recovery.
Tiger Global, the Tiger Seed’s long-short fund, posted a 13.6 percent gain in the first quarter and is now up 17.4 percent through April. The fund’s long book was mostly responsible for the quarter’s profits.
For one thing, Tiger Global Long Opportunities returned 13.9 percent for the quarter, while the offshore version gained 13.3 percent. In addition, the hedge fund firm founded by Chase Coleman points out that on a gross basis, the long-short fund’s long book returned 16.6 percent.
The long book was driven mostly by gains from The Priceline Group, Amazon.com and Alibaba Group. While the short book lost a small 0.3 percent, Tiger Global points out its short positions “meaningfully outperformed the market, with good performance from certain positions in offline retail.”
We don’t know exactly which retail stocks it was shorting. However, retail and consumer stocks were the best performers in the short book, posting a 2 percent gain. Entering the second quarter, the long-short fund was 38.3 percent short retail and consumer, and 26.4 percent net short the group, by far the firm’s biggest negative bet.
Tiger Global also provided a little insight into its private investments, which account for 7.3 percent of the long-short book. The firm also has a separate business devoted to venture capital. Tiger Global tells clients that the value of its investment in Flipkart, the Indian e-commerce giant, was raised in the first quarter in part due to Flipkart’s recent capital raise from Tencent, eBay and Microsoft.
Tiger Global has also apparently benefitted from boosting its exposure in recent quarters. In the fourth quarter, for example, it sharply raised its net exposure from 25.4 percent to 43. 4 percent despite only slightly raising its gross exposure during that period.
By the end of the first quarter, while the net rose slightly, Tiger Global brought the gross exposure up from 137 percent or so to nearly 164 percent. We had earlier reported that after the first quarter 2016 debacle, the net exposure had shrunk to just 5 percent.
Looking ahead, Tiger Global tells clients the “consumer internet” remains its largest long theme, which is not surprising. It accounts for more than half of the total long exposure in both the long-short and long-only funds. In general, Tiger Global says it spends most of its research efforts on the internet, software, payment processing and consumer retail sectors.
“Within this theme, we continue to find examples of companies that are levered to powerful secular growth trends, enjoy high returns on capital, have formidable barriers to entry and are led by strong management teams,” the hedge fund firm elaborates in the letter.
It adds that many companies within this theme still trade at attractive multiples of future free cash flow. They include Alibaba, Amazon.com, JD.com, Priceline Group and Tencent.
Priceline, the online travel giant, is still the fund’s biggest long position. In the letter, Tiger Global stresses that travel continues to grow in general and online bookings are growing in importance, led by Priceline, the “number one purveyor of room nights” in nearly every country except the U.S. and China.
“The company’s competitive moat is widening as it capitalizes on its global scale, enormous inventory pool and large investments in technology and inventory acquisition to help improve its industry-leading conversion rates,” the firm adds in the letter.
Tiger Global also discusses another one of its holdings that doesn’t fit into its favorite investment theme: Apollo Global Management. We earlier reported the hedge fund recently boosted its stake in the alternative investment firm headed by Leon Black to more than 23 million shares, or 12.5 percent of the total. “Apollo’s returns are the envy of the private equity industry,” Tiger Global states, noting the company’s net internal rate of return (IRR) has exceeded 20 percent since its inception.
“While it is still early in the year, we feel like we are executing well and our research flywheel is spinning fast,” Tiger Global tells clients. “We like the positions in the portfolio and are actively seeking out new, high-return opportunities that are supported by deep fundamental research.”
