Another day, another troubling sign from a titan in the startup investment world.
Tiger’s hedge fund dropped 14.2% last month, after the firm reportedly invested heavily in tech giants such as Snowflake and Carvana just before the downturn started in the first quarter of the year. The firm sold off some holdings at a significant loss.
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“We take very seriously that our recent performance does not live up to the standards we have set for ourselves over the last 21 years and that you rightfully expect,” the firm wrote in a letter to investors. “Our team remains maximally motivated to earn back recent losses.”
The New York-based firm is made up of both a hedge fund business and a private equity business which invests in the startup ecosystem and is known for its large portfolio of unicorn companies.
The massive loss has caused a change to the business structure of the firm, according to the report. Tiger is cutting management fees by 50%. It is also offering to set up separate accounts for clients who want to redeem illiquid, private assets—i.e. startups—as valuations continue to take a beating.
The hedge fund losses illustrate the relationship between private and public markets. As its public holdings have dropped in value, Tiger is now overexposed to the private market. Its portfolio is weighted too heavily to its more illiquid private assets.
The decline in share prices also gives a large crossover firm like Tiger less access to capital for the private markets.
According to Crunchbase data, Tiger has actually led or co-led more private rounds through roughly the first five months of this year than in the previous two, but total dollar amounts in those rounds have been down.
Market woes and warnings
The news should not come as a shock, as the market continues its tumultuous ride. The Nasdaq Composite Index—a good indicator of tech stocks—is down 23% this year.
Tiger was one of the first big spending investors to seemingly warn of a market downturn. In February, reports emerged it would pull back from the private market.
One last interesting note about the Tiger news is that in March, it was reported some partners at Tiger would start to invest their own money into seed funds at other firms to get better access to young startups.
It’s fair to wonder what a 50% management fee cut will do to those desires?
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