The most prominent crossover investor — industry jargon for hedge funds that also do venture capital — is Chase Coleman’s Tiger Global Management LLC. The firm’s public stock positions fell from $46 billion at the end of 2021 to just over $26 billion as of March.
Though it began as a hedge fund, Tiger Global has supersized thanks to its private-equity business. As of October, Tiger Global managed about $95 billion — with its venture capital arm accounting for around two-thirds of the total. Its main hedge fund, a long-only fund and another that also makes some private wagers, managed about $35 billion. That side of the business lost about $16 billion in the first four months of the year.
Tiger Global’s aggressive dealmaking has shaken up the venture capital world. Last year, it backed 335 deals, or about 1.3 deals per business day, according to CB Insights. That outdid even the one deal per day by Masayoshi Son’s SoftBank Group Corp. In the first quarter this year, Tiger Global accelerated the pace, doing 129 deals.
This voracious appetite was backed by equally eager clients. In March, Tiger Global raised $12.7 billion for its latest venture capital fund, almost twice its previous growth fund, which had collected $6.7 billion just a year earlier. The new fund already started investing.
Tiger Global is an outlier but not an exception. Other Tiger Cubs — named for money managers who previously worked at Julian Robertson’s Tiger Management — are also enthusiastic crossovers. Fellow cub Philippe Laffont and his Coatue Management LLC is the world’s fourth-largest unicorn investor, according to Crunchbase. Coatue has participated in 258 deals since 2021, data provided by CB Insights show.
These venture capital deals were made close to the market top. Much has changed since. The Nasdaq 100 Index, a benchmark for large-cap tech stocks, is down 25% this year. Shares of newly minted initial public offerings, such as Coinbase Global Inc. and Robinhood Markets Inc., are deep under water.
Meanwhile, SPACs, a trendy way for very young companies to go public in recent years, are losing even their investment bankers under the harsh glare of skeptical regulators. As such, investors will inevitably ask what they bought into. According to Tiger Global, its latest fund has about 900 investors.
Fortunately, venture capital does not have to slash its portfolio value every time the Nasdaq tumbles — one good reason that draws hedge funds to cross over in the first place. There’s a lot of leeway in judging the fair value of closely held unicorns, but funds do need to write down their portfolios if there’s an extended downturn in public markets.
For guidance on how fair value accounting works in the opaque private equity world, here’s what SoftBank does with its $100 billion Vision Fund:
For unlisted portfolio companies, SVF1 recorded unrealized gains on valuation (net) totaling ¥709,833 million, reflecting an overall increase in the fair values of certain portfolio companies in the fiscal year following successful funding rounds and strong business performance, while a wide range of portfolio companies was written down in the fourth quarter reflecting a decline in the share prices of public market comparable companies.
That does not bode well for the Tiger cubs. Tiger Global’s $6.7 billion private equity fund, which closed in early 2021, has already completed 360 deals. Roughly half are late-stage investments, or financing after series B, data compiled by Bloomberg Opinion show. As such, the chance of its startups notching successful future rounds is slimmer — and an extended IPO drought matters more for that fund. Already, Tiger has pivoted its strategy — the latest $12.7 billion fund will focus more on companies in their early stages.
Meanwhile, “comparable” can be a cursed word. Funds may have to consider reassessing the value of their private holdings if there is a sharp decline in peer companies’ share prices, or if their co-investors cut their valuations. For diversification and maximum exposure, crossover funds do a lot of co-investing. In December, Tiger led the $1.8 billion series B funding round in Commonwealth Fusion Systems, a US nuclear energy group, with about 30 participating investors.
Investors who believe their investment acumen is transferable take a risk when expanding outside of their core expertise. In the venture capital sphere, traditional funds foster and nurture their startups, especially when times are tough and young companies are laying off workers.
Case in point: in the depth of the pandemic, SoftBank had tried to bail out Katerra, a troubled construction startup, and even encouraged Greensill Capital, the troubled supply-chain financier, to lend to its fellow Vision Fund unicorns. With only about 30 investment professionals, does Tiger Global have the resources or patience to cultivate synergies among its vast portfolio of tech startups?
Tiger Global’s $16 billion loss so far this year marks one of the biggest dollar declines in hedge fund history. It eclipses the $12.1 billion lost by Bridgewater Associates LP in 2020, and the $7 billion hit Melvin Capital Management LP suffered at the hands of frenzied GameStop Corp.’s retail investors. But that won’t be all. When will we find out how much money Tiger cubs have lost in their venture capital investments?
More From Bloomberg Opinion:
• Hedge Funds That Want to Go VC Need to Beware: Shuli Ren
• Turn Off the Memes, This Party’s Over Like in 2000: John Authers
• Tech Is Crashing, So Kiss Your Bonus Goodbye: Chris Bryant
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She is a CFA charterholder.
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