Wednesday 27 Sep 2023
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This article first appeared in Wealth, The Edge Malaysia Weekly on January 31, 2022 - February 6, 2022

This is one of the few books I found online on Julian Robertson, the man who founded Tiger Management in 1980. It became one of the most successful hedge funds in the industry but collapsed after 20 years during the dotcom bust.

Authored by Daniel A ­Strachman and published by John Wiley & Sons Inc in 2004, the book talks about Robertson’s family background and his career at Kidder Peabody & Co, an American securities firm with a history dating back to 1865.

It was partly Robertson’s ability to spin out successful hedge fund managers that made him a legendary figure in the industry. Some say it is a legacy that other best hedge fund managers of the world, such as George Soros and Michael Steinhardt, didn’t achieve despite the mouth-watering returns both generated for their investors.

In the early 2000s, some 30 to 40 people who ran successful hedge funds started their careers at Tiger Management. All of them had worked for or with Robertson at one point, evidence of how influential he was in the hedge fund industry.

Remember Bill Hwang of Archegos Capital Management who lost US$20 billion in two days last year? He was dubbed one of the “Tiger Cubs” who worked for Robertson before striking out on his own. The losses Hwang incurred were so big that industry players were assessing the impact on the global markets.

Several other Tiger Cubs have been running hedge funds successfully over the decades. The Financial Times ran an article titled “Tiger Cubs: How Julian Robertson built a hedge fund dynasty” after the implosion of Archegos Capital and mentioned several other “Cubs” in it. Among them were Lone Pine Capital’s Steve Mandel, Viking Capital’s Andreas Halvorsen and Tiger Global’s Chase Coleman.

How is their performance? The three firms yielded investors total net gains of US$42.3 billion, US$36.6 billion and US$26.5 billion, respectively, in about two decades, which looks impressive.

Born in 1932, Robertson is 89 years old and has long retired as an investor.

He started as a trainee at Kidder Peabody & Co and became a salesman at its brokerage business, selling stocks and bonds to retail and institutional investors. He ended up running the firm’s money management arm and stayed there for a good 22 years.

Interestingly, Robertson married Dale Jones, the daughter of Mary and Alfred Jones in the 1970s. Alfred Jones, or Alfred Winslow Jones, launched the world’s first hedge fund in 1949, that held an investment portfolio comprising both long and short positions to ride through market cycles. It was during their meet-ups that Robertson’s father-in-law planted the seed of launching a hedge fund in his mind.

In 1978, the 46-year-old Robertson grew tired of sales and marketing work at Kidder Peabody. He wanted to be involved in the money management business instead of merchandising. He took a sabbatical and went to New Zealand, quitting his job later on. In 1980, Tiger Management was born, and the rest is history.

A quick search online shows that readers on Goodreads gave the book an average score of 3.3 out of 5. I think it is a fair score as it is not a captivating or contentious book that aims to unveil a scandal or industry secrets like, let’s say, Enron: The Smartest Guy in the Room, which revealed the backstories of one of the world’s major corporate scandals. There isn’t much criticism of Robertson in the book and what there is, is worded cautiously.

The book illustrates how Robertson, as a value investor, made several investment decisions based on companies’ and economic fundamentals. But several chapters in the middle seem to be written out of the firm’s investment letters to its investors or, perhaps, its annual reports. Those chapters are a little too lengthy, in my opinion. They also seem to lack first-hand accounts from Robertson himself. 

The gems are hidden in the last few chapters, starting from Chapter 10, which attempt to dissect how Robertson had to close shop at the turn of the millennium despite a stellar performance spanning two decades. That was during the 1999 to 2000 period when the dotcom bubble was building up. 

According to the book, Robertson had “continued to invest in value companies, stocks that looked good from conventional valuation measures. The problem was that the market performance of these companies over the last few years had been terrible relative to the performance of growth companies. Value was not in vogue”. 

In 1999, Tiger Management lost 19%, and was 40% behind the S&P 500. In the preceding 18 months, the firm lost 43% compared to S&P’s rise of 35%. It seems that Robertson had lost his magical touch and a firm that had been so successful for 20 years had to be closed. Some say Robertson could have been vindicated had his firm survived the dotcom bubble. 

Some industry players believe that Tiger Management fell from grace due to its rapid growth in asset size and the large amounts of withdrawals by big investors who had lost faith in the firm. These investors measure investment performance over the shorter term. Tiger Management failed to stop them from pulling the plug. 

The rapid growth of the firm is said to have changed its culture from dynamic and seamless into a bureaucracy where people guarded their turf and thought mostly of themselves. Infighting emerged while the vibrant exchange of ideas was lost. 

“What went wrong with Tiger is similar to what goes wrong at many entrepreneurial shops that grow beyond their founder’s expectations. The companies lose focus and go from being a place where ­ideas are generated to one where things are maintained rather than initiated. As Tiger grew, the firm became more and more corporate, it became bureaucratic, it went from being a place that people enjoyed freedoms to one in which the staff were forced to protect their fiefdoms,” writes Strachman. 

The fall of Tiger Management reminded me of two favourite words of boutique fund managers and individual investors: Small and nimble. What if Robertson was only investing his own money? He could have stayed invested in the market, come through the dotcom bubble and generated good profits. Unfortunately, running a firm and managing other people’s money is a different story. 

From this perspective, it is true that individual investors do sometimes have an edge over big fund managers. And the advice that investors should only invest with money they can afford to lose holds true.

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