The aggressive retreat of a once red-hot investment strategy continues, at least if hedge funds are anything to go by.
Venture capital, which in 2015 enjoyed its second-biggest year of the past 20, contracted sharply in the fourth quarter and has yet to bounce back, at least with hedge fund firms that devote a portion of their capital to private investments. These firms have made very few new investments or add-ons to previous investments in private start-ups for at least three quarters now, a partial response to the increased volatility in the public equity markets since last summer. A look at their second-quarter activity shows that hedge fund firms with a record of plowing money into private companies have seemingly slammed their checkbooks shut.
Take Tiger Global Management, perhaps the most aggressive hedge fund firm in terms of making private investments. New York–based Tiger Global made only four investments in the first quarter. This is a huge slowdown in activity for the investment firm. By comparison, it made nine private investments in the fourth quarter of 2015, 17 in the third quarter, 20 in the second quarter and 15 in the first quarter.
Additionally, in the first quarter of this year, Tiger Global’s hedge funds trimmed their exposure to private equity from 10.7 percent to 9.1 percent. According to CrunchBase.com, which tracks venture capital investments, the entire firm made just two private investments in the second quarter.
In June, Tiger Global participated in a $40 million financing round for Glassdoor, the job search website. The firm was a previous investor in the company, which is now considered a unicorn, because it is being valued at $1 billion.
In April, Tiger Global led the $30 million Series C financing round for Nestaway Technologies, an Indian real estate start-up. At year-end the firm had about $10 billion in ten venture capital funds, which are managed separately from the firm’s long-short and long-only funds.
New York–based Falcon Edge Capital has also been quiet lately. The firm — founded in 2012 by Richard Gerson, who was previously a founding executive at Tiger Cub John Griffin’s New York–based Blue Ridge Capital — has not made a new private investment since last August. From April 2014 through last August, Falcon Edge made 11 private investments. Altogether, the privates account for roughly 7 percent of the $2.12 billion invested in the Falcon Edge Global hedge fund and its offshore counterpart.
Valiant Capital Management, the San Francisco hedge fund firm headed by Christopher Hansen, has made just one private investment this year. It participated in the $26 million Series D funding of BrainBees Solutions, parent company of the children-focused e-commerce website FirstCry.com, Valiant’s second investment in BrainBees.
Last year Valiant made at least nine investments in eight companies, while in 2014 it made ten private investments, according to Valiant documents sent to investors.
The firm makes private investments through its Valiant Capital Partners onshore and offshore hedge funds. At the end of the first quarter, private investments, which Valiant calls side pockets, accounted for more than 25 percent of the firm’s roughly $2 billion in assets.
To be sure, there were a few high-profile deals in the second quarter. In May, Snapchat, the photo-messaging application company, raised about $1.8 billion from several prominent hedge fund managers, including include Greenwich, Connecticut–based Glade Brook Capital Partners, which has already made major commitments to the company over several years; Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine Capital; Philippe Laffont’s New York–based Coatue Management, an early investor in the company; and James Dinan’s New York–based York Capital Management.
Also in May, Maverick Capital Ventures, the venture arm of Dallas-based Maverick Capital, was among a number of investors to participate in the $30 million Series B financing round for Caribou Biosciences, a developer of technologies for genome engineering.
O. Andreas Halvorsen’s Greenwich, Connecticut–based Viking Global Investors has made at least three private investments recently. In June it participated in the $100 million Series C round of funding for Ginkgo Bioworks, an organism design company. (New York–based Senator Investment Group also invested in the deal.) Earlier in the year Viking participated in a $5.5 million Series seed funding of Vitagene, a subscription-based supplementation company, and the $6 million Series A financing for EpiBiome, a precision microbiome engineering company.
But overall, hedge funds have sharply curtailed their private investments of late. The reluctance among many hedge funds to make new investments in private companies comes at a time when a handful of them are sitting on big piles of cash that they raised recently to invest in just these kinds of companies.
For example, in December, Tiger Global raised $2.5 billion for its new venture capital fund, Tiger Global Private Investment Partners X. Last year Viking launched Viking Global Opportunities, a liquid-illiquid — or so-called hybrid — fund that was designed to be fully invested at all times but makes private investments when it sees the opportunity. Last October, Viking raised $945 million in additional capital for the fund, bringing the fund’s total capital at the time to $2.7 billion. The fund gained 1.5 percent in the second quarter of 2016 but was down 5.3 percent for the first half.
In 2015, Coatue raised money for Coatue Private Fund II, its second fund designed to invest in pre-IPO companies. Two years earlier it had launched Coatue Hybrid Fund I.
