It is no secret that many of the hedge funds with some sort of tie to Julian Robertson Jr.’s Tiger Management are having a rough time this year.
We have chronicled the sharp losses at New York–based Tiger Global Management and Hound Partners as well as the smaller losses at Maverick Capital. Many of the lesser-known and smaller Tiger Seeds are also down in the mid- to high-single-digit range.
However, one high-profile manager who is also referred to as a Tiger Cub has successfully recovered from a sharp early-year loss: Stephen Mandel Jr., the founder of Lone Pine Capital.
The Greenwich, Connecticut, firm’s flagship long-short fund, Lone Cypress, has returned about 1 percent for the year through September 9, according to an investor in the fund. Lone Cascade, the firm’s long-only fund, is up 3 percent. This is a huge reversal from the end of the first quarter, when Lone Cypress was down 8 percent (the firm’s two smaller long-short funds were down slightly less) and Lone Cascade was off by 4.5 percent.
In the first quarter Lone Pine lost money from its long holdings and a lesser share from its short bets, especially in the U.S. and emerging markets, according to its first-quarter letter to clients. The sharper rally in the long-short fund than in the long-only fund since the end of the March also suggests that not only has Lone Pine’s long portfolio recovered but so has the short book.
The firm declined to comment. And it is not known definitively which strategies, geographic regions or specific stocks have led the rebound.
In its first-quarter letter Lone Pine told clients it had reduced risk in its long-short portfolio by lowering its gross exposure range to between 150 percent and 160 percent from a previous 170 percent to 190 percent. The net exposure was lowered to 50 percent from about 60 percent, which is the range it usually maintains. Lone Pine has maintained its concentration on Internet franchises and in “leading business verticals enabled by the Internet.”
It is not known exactly what has driven the rebound this year. However, according to an investor in the funds, since the end of the first quarter, the firm has made money on roughly the same longs and shorts that caused Lone Pine to post its sharp losses in the first three months of the year.
We do know that from the first to the second quarter, the firm mostly left its largest U.S.-listed long positions intact. Seven of the eight largest U.S. longs held by the entire firm at the end of the second quarter were also the seven largest at the end of the first quarter, according to regulatory filings. They were also seven of the eight largest longs held by Lone Cypress at the end of the first quarter. The only significant difference is that Microsoft Corp. went from being the largest long firmwide at the end of March to the eighth largest the following quarter.
Of the seven stocks that dominated the portfolio in each of the first two quarters this year, six made money from the end of the first quarter through September 9. They were led by cable and broadband giant Charter Communications, which surged more than 30 percent since the end of the first quarter after gaining 10 percent in the first three months of the year.
Internet retailing giant Amazon.com jumped 28 percent since the end of the first quarter after dropping 12 percent in the March period. Social media pioneer Facebook is up 11.4 percent after climbing 9 percent in the first quarter. Online travel company the Priceline Group is up nearly 10 percent after rising 1 percent in the first quarter.
Distilling giant Constellation Brands is up nearly 2 percent after gaining more than 6 percent in the March quarter. Software maker Microsoft, the largest long at the end of the first quarter, rose a little less than 2 percent since then.
The only losing stock among the top seven stocks was discount retailer Dollar Tree. However, it dropped less than 1 percent since the first quarter.
This year’s abrupt reversal of fortune underscores why Mandel is widely considered among the elite Tiger Cubs. It is also a reminder that you really can’t judge hedge funds by one or two quarters of performance, although people who track hedge funds can’t help themselves.
