No hedge fund firm is as equally committed to public and private technology investments as Charles (Chase) Coleman IIIs Tiger Global Management.
At the beginning of the year, the New York firms hedge funds and long-only funds, which comprise its public funds, managed a total of $10 billion, up from $6 billion or so two years earlier. Tiger Global also has a separate venture capital business, which invests in private companies. In midyear, seven active funds, known as private investment partners, or PIPs, held 128 investments valued at $12.9 billion. Since 2003, nine private funds have invested $9.2 billion in 201 companies in 30 countries.
The PIP portfolios invest in nonpublic, pre-initial-public-offering companies but have much longer lockups than the public funds.
Tiger Global is representative of an increasing trend among some hedge fund firms to attack tech investing on both the public and private side. In this, the last article in a five-part series looking at hedge funds and technology investing, we examine one of the firms that exemplify an aggressive focus on technology.
Also from this series:
- Tech Stocks on the Edge of a Nervous Breakdown
- Hedge Funds and Tech Stocks: A Tighter Focus, a Wider Search
- Hedge Funds and Tech Stocks: Dump the Old, Embrace the New
- Hedge Funds and Tech Stocks: The Allure of Private Investments
In terms of personnel, Tiger Global has seen some changes in 2015. After the June departure of Feroz Dewan, who was running Tiger Globals hedge funds on a day-to-day basis, Scott Shleifer was named head of Tiger Globals public equity business. Shleifer has been with the firm since 2002 and, since 2011, had headed up the private business with Lee Fixel, who now runs it by himself.
Despite Dewans departure, Tiger Globals strategy for its public funds remains intact and quite straightforward: to buy well-positioned companies at low multiples of future free cash flow and short poorly positioned companies at high multiples of future free cash flow.
In its second-quarter letter to investors, the firm said it is trying to more effectively focus and simplify its business by emphasizing areas it believes its research can yield a meaningful competitive advantage. The letter went on to suggest that several of the most prominent themes in its long portfolio, such as Internet, software and technology companies, will likely increase meaningfully in importance over time.
Tiger Global recently hiked its concentration in its favorite ideas, including Los Gatos, Californiabased online content giant Netflix; e-commerce companies Beijing-based JD.com and Norwalk, Connecticuts the Priceline Group; online classifieds companies Autohome, headquartered in Beijing, and Cape Town, South Africabased Naspers; financial technology firms FleetCor Technologies, based in Norcross, Georgia, and Purchase, New Yorks MasterCard; and Seattle software company Tableau Software.
Tiger Global also exited most of its positions in media, cable and telecom, a favored strategy among many long-short hedge funds.
The firm believes that over-the-top content providers such as Netflix and other online video alternatives like YouTube, now owned by Google, have put traditional media companies, as well as the video and advertising revenue of cable providers, under pressure. We refer to cable and telecom companies internally as Internet services providers, given our belief that most of their value and future growth will come from providing high-speed broadband access, the letter added.
The firm said it prefers investing in companies that benefit as the speed and ubiquity of Internet access increases and where the combination of good value to consumers and shrewd content investments drives rapidly increasing viewership.
The private partnerships, which offer much longer lockups and less liquidity than the public funds, seek businesses with sustainable barriers to entry that can be purchased at attractive multiples of expected future cash flow, noted the firms first-half 2015 letter sent to clients.
This includes a large number of Internet companies, as Tiger Global noted that growth in usage from cheaper, faster and more powerful mobile devices continues to be the most powerful secular theme it sees, arguing that we are still in the relatively early stages of this trend.
Altogether since 2003, Tiger Global has invested 90 percent of the capital raised in its nine private funds in Internet, software and fintech companies.
The firm stressed that the cost of launching a new business continues to decline, leading to an expansion of new potential investment opportunities, especially in India and China, which are bypassing traditional ways of communicating and transacting.
Tiger Global has invested a total of $3 billion in those two countries over the past four years. The firm calls India one of the most attractive geographies for additional investments, citing its large population, strong economic growth, positive demographic trends and low smartphone penetration. The two largest holdings among the private funds are Flipkart, an Indian e-commerce giant, and OlaCabs, known as the Uber of India.
Tiger Global has invested more than $1 billion in Flipkart, which works out to about 30 percent of the company, and $83 million in OlaCabs, for 19 percent of the company.
Meanwhile, Tiger Globals hedge funds also invest in some of the private companies. For example, at the end of the first quarter, private equity accounted for 7.6 percent of the hedge funds total equity exposure. This was down from 10.9 percent at the end of the third quarter of 2014.
The public funds had invested in Chinese e-commerce giant Alibaba Group Holding before it went public in September 2014.
In April of this year, the hedge funds had invested $100 million alongside PIP IX in Flipkart.
Also, two of its private investments became major positions in the hedge funds after they went public: JD.com and Brooklyn, New Yorks Etsy, the online crafts marketplace. Etsy remains heavily held by private funds, many of which didnt sell shares in its IPO.
In the private funds second-quarter letter, Tiger Global explained the importance of aligning its private portfolio of 120 companies within consumer Internet, software and fintech, with the public portfolios investment themes ensuring broad coordination across our organizations research efforts.
The letter added, Our belief is that a focused, aligned and simple investment strategy will help us maximize the returns we are capable of generating at Tiger Global.