How the Tiger Cubs Stacked Up in 2013

January 09, 2014   Stephen Taub

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It was a pretty good year for most of the descendants of Julian Robertson Jr.’s Tiger Management, with London-based Tosca and Greenwich, Connecticut–based JAT leading the pack.

When it comes to 2013 hedge fund returns, two themes have emerged: One, a great many individual hedge funds way outperformed the composite returns of 8 percent to 9 percent calculated by the scorekeepers. Two, most of these funds still fell short of the performance of the major market indexes such as the S&P 500, which rose about 30 percent in 2013.

This is particularly exemplified by the Tiger Cubs and Tiger Grandcubs - so called because the managers of these funds are descendants of Julian Robertson Jr.'s Tiger Management Corp. They are widely regarded as some of the industry's best long-short managers and stock pickers.

According to confidential performance data obtained by Alpha for more than a dozen prominent Tiger-related funds, just two or three outperformed the S&P 500 last year. This is not too surprising since most Tiger Cubs are long-short managers, and last year was very painful for most investors who shorted. So all factors considered, most of them still turned in at least respectable results.

Interestingly, the Tiger-affiliated managers who did best last year were not the brand-name funds most often associated with the firm. By far the best-performing Tiger-affiliated fund in 2013 was Tosca Opportunity, which posted a blistering 56 percent gain. The fund is managed out of London-based Toscafund Asset Management, founded by Tiger Cub Martin Hughes. 

Another strong performer was Greenwich, Connecticut-based JAT Capital, which posted a 30.6 percent gain. The $2.2 billion fund was founded in late 2007 by John Thaler, a technology, media and telecommunications specialist with Chris Shumway's Shumway Capital Partners. That makes Thaler a Tiger Grandcub, as Shumway, who closed his hedge fund firm several years ago, previously worked for Tiger Management.

Most of the big equity hedge funds run by Tiger Cubs posted net returns for 2013 ranging from the midteens to the low 20s. They include Charles (Chase) Coleman III and Feroz Dewan's New York-based Tiger Global Management, up 14 percent; Lee Ainslie's Dallas-based Maverick Fund, up 16.3 percent; Jonathan Auerbach's New York-based Hound Partners, up 16 percent; Stephen Mandel Jr.'s Greenwich, Connecticut-based Lone Cypress, up about 18 percent (gross); and Philippe Laffont's New York-based Coatue Management, which was up close to 20 percent.

Several prominent managers posted gains in the low 20 percent range in their main long-short funds. They include O. Andreas Halvorsen's Greenwich, Connecticut-based Viking Global Equities, which finished the year up 22.6 percent; David Gallo's New York-based Valinor Management, up 23.4 percent; and Paul Hudson's Greenwich, Connecticut-based Glade Brook Capital Partners, up 21 percent.

These are generally impressive gains, given that most or all of these managers also have considerably large short books. However, only Tosca and JAT actually outperformed the widely followed benchmarks, although another two came pretty close to matching those gains and actually beat the MSCI index, which many managers also benchmark certain funds against and which was up slightly more than 27 percent last year.

According to Hughes, the Tosca Opportunity fund earned big gains last year from positions related to the growth of U.K. housing needs, a play that continues to benefit the fund. Shares of Redrow, a housing developer, rose 80 percent last year. Tosca also cashed in on the growth of the global office service industry, gaining 90 percent from its investment in Regus, a global company that rents office space.

"In both cases, the founder of the business is the largest shareholder and aligned with the PM [portfolio manager]," says Hughes in an e-mail.

Hughes previously served as head of the global financials team at Tiger Management from 1997 to 2000.  Unlike most long-short Tiger Cubs, Toscafund specializes in financial stocks, which fell out of favor after the 2008 global financial crisis and during the European debt and euro crisis in 2011 and 2012.

The firm's Tosca fund, a long-short equity fund, was up 30 percent last year net of fees. The Tosca fund's 2013 performance extends the remarkable turnaround since Johnny de la Hey took over as the fund's portfolio manager in December 2008 after the fund lost 67.54 percent in the first 11 months of that disastrous year under the leadership of Hughes. 

De la Hey has been with Toscafund since its inception and worked at Tiger from 1997 to 2000. De la Hey has posted a 22.6 percent annualized gain over the life of his run. 

JAT, the other big winner last year, specializes in technology, media and telecommunications, as do many of the other Tiger Cubs. It achieved last year's gains despite a very low 31.2 percent average net exposure, according to knowledgeable sources.

Thaler also is mostly a buy-and-hold investor, at least when it comes to his highest-conviction stocks. For example, his five largest longs at the end of the third quarter were Time Warner Cable, Melco Crown Entertainment, LinkedIn Corp., 21st Century Fox, and Yahoo. Combined they accounted for nearly 30 percent of the long portfolio, while the top ten account for about 45 percent of assets. Rounding out the top ten were Madison Square Garden Co., CBS Corp., Time Warner, Las Vegas Sands Corp. and Pandora Media.

Nine of those stocks also ranked among the top ten at the end of the second quarter, and four of them were among the top six at the end of the first quarter: Time Warner, Las Vegas Sands, LinkedIn and CBS. Sure enough, last year Time Warner rose 47 percent, Las Vegas Sands was up 70 percent, LinkedIn gained 88 percent and CBS climbed 66 percent.

Recent start-up Falcon Edge Capital, based in New York, gained 28 percent last year. It was founded in mid-2012 by Richard Gerson, a Tiger Grandcub as well because he was a founding executive at John Griffin's Blue Ridge Capital. Despite its relatively recent launch, Falcon Edge had more than $1.2 billion in assets at the end of April, according to a regulatory filing.

At the end of September, its five largest holdings were Cheniere Energy, which accounted for 11 percent of its $1 billion in U.S. equity assets; American International Group; Avis Budget Group; Groupon; and Ctrip.com International. Altogether the top five holdings accounted for nearly 42 percent of equity assets. Cheniere, AIG and Avis Budget Group were also the top three holdings at the end of the second quarter and among the top four holdings at the end of March.

Last year Cheniere surged about 140 percent, Avis Budget doubled and AIG rose more than 45 percent. Groupon jumped about 37 percent in the second half of the year alone.

Robert Citrone's Norwalk, Connecticut-based Discovery Capital Management, another top performer, is not your typical long-short Tiger Cub. Citrone combines a macro, top-down view with bottom-up fundamental analysis, focusing on equities, credit investments and currencies, both in emerging and developed markets. Last year his flagship Discovery Global Opportunity Partners fund rose 27.53 percent, while Discovery Global Macro fund was up 26.93 percent. This was in line with the MSCI index, a more realistic benchmark for Discovery.

An earlier version of this story reported that Johnny de la Hey was the portfolio manager of Tosca Opportunity. He is actually the portfolio manager of the Tosca Fund. Martin Hughes runs Tosca Opportunity. Alpha regrets the error.



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