Tiger Global blames inflation as flagship hedge fund down 50% in 2022

Chase Coleman’s hedge fund Tiger Global ended the second quarter nursing heavy losses amid a tech stock rout that has caused performance across one of the world’s largest hedge funds to plummet.

A long-only fund the firm manages ended the second quarter down 63.6 per cent after fees, according to a letter it sent investors seen by the FT, while the firm’s flagship fund ended the first half of the year down 50 per cent after fees.

“In reflection on the first half of the year, it is clear we underestimated the impact of rising global inflation and entered 2022 with too much exposure,” the firm told investors.

Tiger said it had in the past brushed off fears of inflation because it believed the era of technological change was “deflationary”, a manoeuvre that had worked through the post-crisis bull market in stocks. Over the past decade, the hedge fund’s heavy exposure to technology and software companies in the US and China had made it among the best performing and fastest growing hedge funds in the world, recording tens of billions of dollars in profits.

However, Russia’s invasion of Ukraine, along with surging inflation and a hawkish Federal Reserve, caught the fund unprepared.

“This time, however, we did not appreciate how unique the circumstances were that enabled inflation to rise and persist,” the firm said, admitting it was overexposed to more volatile financial markets.

Tiger could not immediately be reached for comment.

The losses have chipped into Tiger’s enviable record. Its flagship fund, launched in 2001, has now recorded net annual returns below 15 per cent, while the long-only fund launched in 2013 has returned an annual average of less than 4 per cent.

The firm’s sprawling portfolio of private investments continues to soften the blow of losses from its holdings in liquid public markets.

A so-called “crossover” strategy fund, which blends Tiger’s publicly traded and privately held investments, shed nearly 37 per cent on a net basis in the first half of 2022.

The firm marked down its portfolio of private holdings further in the second quarter despite what it characterised as adequate cash positions and “positive operating performance overall”.

Though Tiger admitted to misjudging the volatility that has come this year, it told investors it would maintain the same approach it has held since it was founded by Coleman in the wake of the dotcom bust. He started Tiger Global after working under hedge fund billionaire Julian Robertson, who closed his Tiger Management in 2000.

“[W]e believe the same approach we applied in those first 20 years — with improvements and additional perspective from new battle scars — will recover losses and generate the long-term, superior performance that is our mission and expectation,” the investor letter said.

The firm has been trimming holdings in groups in which it has “low conviction”, it said, and increasing its positions in businesses it deems “the best companies at interesting prices”.