Jane Martinson
Julian Robertson, one of the world’s most successful hedge fund managers, last week warned that investor enthusiasm for hi-tech stocks is creating ”a pyramid destined for collapse” as he announced the closure of his Tiger Management investment company.
In an emotional letter to his remaining clients last week, Robertson said he could not continue to risk their money in ”a market which frankly I do not understand”.
The 67-year-old’s decision to withdraw from actively managing other people’s money comes after his hedge funds lost $16- billion in value over the past 18 months.
Tiger’s underperformance echoes that of other ”value investors”, including Warren Buffett, the world’s wealthiest investment manager, who failed to invest in Internet companies and focused on ”old economy” stocks.
Robertson left with a rallying cry for value investors. ”The key to Tiger’s success over the years has been a steady commitment to buying the best stocks and shorting the worst,” he wrote.
”In a rational environment, this strategy works well. But in an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much.”
Investors have withdrawn $7,7-billion from Tiger since it started to stumble badly in August 1998.
Robertson is expected to keep a small staff in his Manhattan office to continue to manage some $1,5-billion of his own money. Some 150 hedge fund managers employed around the world are expected to leave with liberal benefits, according to a company representative.
A further $500E000 belonging to the company’s partners could also be managed by Robertson. With most of the company’s portfolio already liquidated, the remainder will be returned to remaining investors.
Tiger holds substantial stakes in a number of industrial companies, such as its 22% of US Airways.
The company is expected to put these into a separate fund in order to prevent the shares from crashing as a result of simply dumping them on the stock market. Shares in US Airways were trading down this week.
Robertson’s ability to pick underperforming companies and to take aggressive bets on the direction of the world’s economies made him one of the most successful hedge fund managers, alongside George Soros.
Even after the recent disastrous performance, the Tiger funds returned an annual average of 25% in the 20 years to the end of February.
Hedge funds charge clients, who tend to be wealthy individuals or institutional investors, a hefty percentage of any annual profits. Failure to make any profits directly reduces its ability to pay staff bonuses.
Soros’s funds, still valued at some $19,1- billion, also suffered from an aversion to technology stocks last year.
However, the performance of Quantum, the Soros flagship fund, has improved significantly since then with a 5% increase since the beginning of the year, compared with Tiger’s 14% downturn in the two months to the end of February.
Robertson, who was recently ranked as the ninth-best investor of the 20th century, started Tiger in 1980. A firm supporter of the financial sector, he championed Morgan Stanley, Bear Stearns, Wells Fargo and Bank America.
In 1998, Tiger saw $2-billion wiped out in a matter of hours as the Japanese yen surged against the dollar.