Tiger Global Management, which suffered huge losses in the first quarter of this year, sharply cut its exposure levels during the three-month period.
According to its March one-page statistical report, the New York firm, founded by Chase Coleman, slashed its gross exposure to 134.2 percent, from about 199 percent just three months earlier. What’s more, it cut its net exposure to just 5 percent, from 40 percent at year-end.
As we earlier reported, the firm’s main long-short equity hedge fund, Tiger Global, and its offshore counterpart lost 22 percent in the first quarter. Virtually all of the losses came in the first two months.
However, while the fund lost only 0.4 percent in March, that month the wider markets rebounded sharply, with the MSCI World Index — Tiger Global’s highlighted benchmark — surging 6.9 percent. Altogether, the MSCI index was down just 0.2 percent in the first quarter.
One investor laments the timing of the exposure reduction. “They’re getting whipsawed, a mortal sin in our eyes,” he says.
In April, Tiger Global gained 1.3 percent, trimming its loss for the year to 21 percent.
We had earlier reported on the hedge fund firm’s first-quarter letter, which Alpha had obtained. However, that report made only general references to the firm’s new exposure level. The specific exposure levels are contained in a separate one-page report, which Alpha obtained only in recent days.
Still, it provided analysis on the specific data. We had earlier reported that Tiger Global blamed mistakes made in its exposure management and stock selection for its first-quarter losses.
The firm told clients that one lesson learned was to “ensure that overall exposure levels are always reflective of the expected returns of the underlying securities in the portfolio.” In hindsight, Tiger Global conceded that it mistakenly let big fourth-quarter winners run, such as Amazon.com and JD.com, “despite prospective IRRs [internal rates of return] that became less attractive.”
The firm said that in the first quarter its longs fell and its shorts rose “and higher average gross exposure led to a larger loss during the quarter.”
Entering the year, the firm’s hedge funds — headed by Scott Shleifer — had a 74 percent net long exposure to media and Internet stocks and a 22 percent net short exposure to retail and consumer issues. The upshot: In the first quarter media and Internet accounted for 10 percentage points of the funds’ 16.8 percent loss in its public equity book. Retail and consumer kicked in about 4 percentage points toward the first-quarter loss, while technology added another 3.5 percentage points to the loss.
As part of the big adjustment heading into the second quarter, the firm cut its net exposure to media and Internet stocks to 28.7 percent, with most of the positions on the long side.
At the same time, it expanded its net short exposure to retail and consumer stocks to about 32 percent, which entails a 6.4 percent long exposure and 38.3 percent short exposure.
The only other industry groups with significant exposure are financials, at 10.2 percent net long, and telecommunications, at 6 percent net long. Tiger Global also has a 4.5 percent net short exposure to health care.
Meanwhile, the funds also trimmed their exposure to private equity, from 10.7 percent to 9.1 percent. This book accounted for 2.1 percentage points of the funds’ loss in the first quarter. It was roughly break-even all of last year.
As we earlier noted, Tiger Global remains upbeat about its portfolio and overall strategy in general. It reminds clients that the consumer Internet is still its “highest conviction long theme” and accounts for one third of equity.
According to its quarterly 13F filed with regulators earlier this week, in the first quarter Tiger Global maintained its position in its largest holding, Netflix. However, it cut its stake in its next five largest positions, including JD.com and the Priceline Group, which along with Netflix account for more than half of its U.S. equity longs.
Still, Tiger Global assured investors that its best month ever was March 2001, which also was its lowest average gross exposure. Investors, however, are well aware of the recent enormous volatility, as the fund has posted double-digit losses in two of the three quarters since Shleifer took over for Feroz Dewan managing the long-short and long-only funds on a day-to-day basis.
