The US investment fund Tiger Global has lost $17 billion since the beginning of the year. An unprecedented defeat for a pioneer in the technology sector which says a lot about the state of the market and, more generally, the economy.
One of finance’s biggest stars – a hedge fund syndicated in high-return investments – has received a historic blow. Tiger Global has lost $17 billion since the start of the year, the Financial Times calculated in an article published on Tuesday (May 10).
An investment fund has not suffered such a loss in such a short time, as confirms the US economic channel Bloomberg. The adventures of Tiger Global bequeathed the defeat of Melvin Capital, which lost seven billion dollars in a few days during the GameStop affair, and the Bridgewater investment fund, which saw $12 billion evaporate at the start of the Covid epidemic. -19.
The adventures of one of the “greatest financiers of all time”
“It’s a very big and impressive loss as far as Tiger Global is concerned,” confirms Alexandre Paradis, market analyst at IG France. In its 21 years of existence, the US hedge fund has lost this money only twice, once during the 2008 financial crisis. “On average, it has an annual return of 20% to its clients,” the analyst explains.
A successful history in the stock market has made its founder, Chase Coleman, among the 15 most important funders of all time by LCH Investments, a company that analyzes the performance of mutual funds. In 2020, it was still the investor who made the most profits, at $3 billion a year, according to Bloomberg.
>> GameStop: When stock market netizens drop the pressure of speculators
Hence the astonishment raised by the massive losses of Tiger Global. “In four months, this investment fund has wiped out nearly three-quarters of all profits made since 2001,” notes the Financial Times.
A breakout is mainly due to a trend reversal in the chosen area for this investment fund: high-tech. The faltering of the Nasdaq (stock market index of new technologies), which has lost more than 20% of its value since the beginning of the year, and the slump of Chinese technology groups in the stock market has hurt his portfolio very badly.
“It is one of the investment funds with the most equity exposure in the innovation sector,” Alexandre Paradis summarizes. Tiger Global has built a reputation for being at the forefront of all trends in the tech sector, investing in Facebook, Airbnb and lesser-known nuggets in the Chinese or European tech scene.
Too exposed to the technology sector?
Tiger Global’s adventures are a testament to how quickly the face of the stock market is changing. “This shows that even seasoned investors who know their sector like the back of their hand have been surprised,” Andrew Beer, an analyst at investment fund Dynamic Beta, sums up in an interview with the Financial Times.
Other funds specializing in new technologies have seen a similar trajectory, without incurring such huge losses. Alexander Paradis asserts that the investments made by the management company Ark Invest – whose raison d’être is to invest in innovation – “have lost 50% of their value since the beginning of the year”.
Tiger Global, Ark Invest, and others look just like the cicada in the famous tale of Jean de La Fontaine. Alexandre Paradis sums these funds “benefited from a decade of continued growth in technology, a sector that seemed immune to all crises and was, moreover, one of the biggest winners from the pandemic.”
They have spent lavishly, confident in the fortunes of Facebook, Apple, ByteDance (the Chinese parent company of TikTok) and other start-ups and “didn’t think of covering themselves in case the sector’s growth stalled,” explains an analyst from IG France.
However, this shift happened at the end of last year, and for a very long time these high level marketers did not want to believe it. “Given, for example, that Chinese tech companies are losing 50% of their value, some think they can benefit from this, by investing at a lower cost, and with the conviction that China will come to the rescue of these companies,” Alexandre Paradis says. But Beijing has allowed these groups to continue to plunge into the red zone.
Victim of the fight against inflation
The change in the stock market climate is largely due to the US central bank, which changed course within a few months. Last October, Alexander Paradis recalls, the Fed wasn’t too concerned about inflation. Then at the beginning of the year, she indicated that from now on her top priority would be to calm the rise in prices, which prompted her to raise interest rates several times.
What is the relationship between fighting inflation and the misfortune of Tiger Global? For a long time, rates were so low that the only profitable investments were the riskiest assets – cryptocurrencies and stocks of tech startups – so everyone wanted them.
But higher interest rates mean that other investments – such as bonds – are starting to look interesting, too. If risky assets are no longer the only ones that pay off, the game may not be worth it. “Especially in the context of the current economic downturn, where tech groups are reporting less impressive financial results [comme Facebook et Netflix, NDLR]Alexandre Paradis identifies. These dangerous stocks are no longer the same, causing them to lose their value.
Thus, Tiger Global’s setbacks seem to be the price to pay for the sudden entry into this new stock market and the financial reality, which is marked by more caution. This may be just the beginning. Technology has been the first to suffer from this slowdown. Other sectors are now beginning to suffer,” notes an IG France analyst who fears the impact of the contagion. Other funds, wrecked by Tiger Global losses, will start dumping their most risky assets, accelerating the stock’s downward trend. How far? It extends into the real economy, with the listed groups unable to raise the money needed in the markets to fund their growth.