Tiger Global loses its roar
Hedge fund tumbles, Twitter troubles, and a bank to crumble?
Tiger Global, which up to recently managed USD35 billion in assets, is down more than 40% this year. In a mere four months, it has lost nearly two-thirds of its gains since launching more than a decade ago.
This would be a problem for any fund, but for a hedge fund like Tiger Global it poses an existential threat. Hedge funds usually charge huge performance fees (~20% of profits) in addition to management fees (~2% of a fund’s net asset value over a period). There is a catch however: to charge those fees, hedge funds often need to surpass the high water mark, the highest value the fund has ever reached.
The fees matter because without them, hedge funds can’t keep talent around. When top employees start leaving, it’s game over for a fund. Last year, when Melvin Capital suffered from GameStop losses of more than 30%, it had to be essentially “rescued” with a USD2.8 billion injection from other funds. Even then, it continued to lose another 23% this year, and now its founder is considering winding down the fund.
The true situation may be even worse. The losses don’t take into account Tiger’s start up investments, where much of its cash is locked up in and where valuations are relatively static. Such illiquidity could cause a cash crunch for Tiger if they get margin called, precipitating a collapse. To top it off, Tiger’s due diligence and deal making for these investments were, even by the most generous terms, haphazard:
“Hah! You’re telling me — I heard they did [Deal X] in 24 hours after only getting a P&L for diligence and came in 25% over the founder’s asking price!”
“I heard they’re doing a new deal every 2 days! It’s completely crazy”
-Conversation between VCs in Silicon Valley on Tiger
But what is more significant is the signal this could send to the entire frothy tech valuation game and the knock-on effects it could bring to the worldwide economy. Tiger is the vanguard of the pride, but it isn’t the only cub (see above). It presents a systemic risk, one that is following a global rout in tech stocks, rising interest rates, and where distressed debt levels in corporate America have doubled this year.
This is where we hold steadfastly to our values of long term, sustainable growth that is backed up by robust research and extensive due diligence. In a climate that is feverish with a lust for fast growth at any cost, there’s something to be said about holding on to steady and reliable businesses at eminently reasonable valuations.
Twitter Musk Go
Billionaire Elon Musk has made a “final” offer of USD44 billion to take the social media platform Twitter private. It would seem that this might be the end of the saga…or is it?
On 9 May, short-selling firm Hindenburg Research warned that Musk “holds all the cards” and it “sees significant risk that the Twitter deal could get repriced lower”. After all, while the NASDAQ has been down 17.6% since the start of April following the wider tech rout, Twitter shares have instead remained up by more than 20%, implying the only thing keeping it afloat is the Elon Musk deal. Should he choose to walk away, Twitter shares could go into free fall and further down the line, a more “palatable” deal could be struck.
HSBC could be broken up
Ping An Insurance, the largest shareholder of the USD3 trillion British bank HSBC has called for the break up of the group. It has called for “an active debate” to split off its Asia operations and move its headquarters away from London, to Hong Kong instead. The business reason stated is to unlock shareholder value, allow HSBC to focus on its Asia profit centre, and move to a more friendly regulatory authority.
However, as former executives of the bank stated, the move by Ping An has “air cover from Beijing” where “nothing happens without the party saying boo”. The developments highlights an increasingly polarised, geopolitical world of business, where even the most global banks are being pressured to pick sides.
Until next month,
Ong Kar Jin
CSO at nØught labs
Kar Jin (or KJ for short) is a researcher, writer, and strategist. He was previously a public affairs analyst before plunging deep into the tech industry, working on blockchain, fintech, and tech ethics as a strategy lead. He graduated from Yale University with a BA in History (Honours), focusing on genocide and ethnic conflict in Southeast Asia.