Le Metropole Cafe, a clarification
From: LePatron@LeMetropoleCafe.com
To: dougak, Date: 8/7/99
Subjects:
(1) The Street.com-Redemption Rumors: Another Bustle in ...
(2) Another story on Tiger and a clarification...
The "Big Boys" know that any financial entity or any
individual that is under financial pressure, sells what
they can first - for liquidity purposes and just to
satisfy the counterparties.
The real problems start with the illiquid portions of the
portfolio. They go last.
The "last man in" investors are stuck with those positions.
From experience, The "Big Boys" know what happens to
the investors that stick it out to the last. It is
not a pretty sight.
When "The Cafe" came out with that 6 billion
redemption number that is "coming", it was with that
thought in mind. We did not mean to infer that our
sources said it would "only" be a "single" redemption.
Take it away: The Street.com
Redemption Rumors: Another Bustle in Julian Robertson's Hedgerow
By Aaron L. Task and Erin Arvedlund
Staff Reporters
8/6/99 6:54 PM ET
The rumor mill continued to churn today, with
market players speculating Julian Robertson's Tiger
Management is facing up to $6 billion in redemptions.
Some credit-market players suggested yesterday's
shenanigans in the swap market were the result of the
fund having to raise cash in a hurry. Separate rumors
of a staff exodus at the macro-style hedge fund were
also circulating.
A $6 billion redemption would cut Tiger's asset base
off at the knees. The New York-based hedge fund has assets
totaling anywhere from $10 billion to $12 billion, according
to Bruce Ruehl with Tremont Advisors, a fund of funds
in Rye, N.Y, and an investor in Tiger. However, a large
portion of the hedge fund's capital is subject to l
ock-up agreements, Ruehl said, suggesting a redemption
of that size is highly unlikely, if not impossible.
As for the issue of Tiger's staff, employees are
"typically given two-year contracts when they start
at $1.5 million a year," according to one hedge fund
manager who requested anonymity. "After two years they
are paid based on performance through a pool, which
vests over five years. What I heard was, in light of
the fund's recent performance, employees up to that
first two-year mark are bolting."
Robertson has done some sort of flip-flop on divvying
up money to managers, but there is no mass staff
exodus, according to an investor.
Alone and an Easy Target
Because of its size, Tiger is easy prey for the
rumor mill, several hedge fund traders said as they
dismissed today's talk. Robertson reportedly called
the redemption rumors "obscene," according to the
aforementioned hedge fund manager, citing contacts at Tiger.
However, there are legitimate concerns. Despite
what has been a legendary track record , Robertson
has had a tougher go of it of late. Since the s
tart of July 1998, Tiger is down 40%,
according to Tremont estimates.
"They haven't mounted much of a comeback over
that time," Ruehl said. "But this is a rough year
for macro funds, a unique year, even though the
yen-dollar trade came back. It likely is not as
big a percentage of every macro hedge fund's
portfolio. And in a month like July, some of
Tiger's equity positions went against them,"
including US Airways (U:NYSE) and Waste Management (WMI:NYSE).
The hedge fund source agreed that $6 billion in
redemptions was hard to fathom, "but that doesn't
mean they're not in a bunch of bad trades."
The source noted Robertson "talked up" his US
Airways earlier in the week. "All of a sudden,
now the airline company has to enhance shareholder
value. Why? Because [he's] losing on all his other trades."
In addition to Waste Management and US Airways, the
source said Tiger's performance has also been battered
by big holdings in Countrywide Credit (CCR:NYSE),
Providian (PVN:NYSE) and Capital One Financial
(COF:NYSE). Each is down considerably from
its 52-week high. (See chart.)
Paper Tiger
Key Tiger holdings show a declining trend
Source: Big Charts
Additionally, an individual investor in Tiger said
he'd received word from the firm that Tiger was
closing to new investors -- i.e., that the hedge
fund did not accept any new money in July and
won't do so in August either. "The idea, I guess,
goes something like this: They don't want to
disappoint people who might put their money in
this year," said the investor, who asked not
to be identified.
Nevertheless, "this does not imperil the survival
of Tiger," Ruehl said.
Meanwhile, another hedge fund manager said Tiger's
woes -- rumored or actual -- portend poorly for
the broader market.
"Tiger's been having trouble with both investors
and staff for a while now, so this is nothing new,"
said Aron Thompson, president of Infinity
Investments near Seattle. "However, what may have
happened is that things got worse for him with the
nosedive in markets. But this isn't simply a Tiger
problem: It will be a hedge fund industry problem,
and probably sooner rather than later. They aren't
making enough money (or in some cases, are losing
too much money) to justify that they exist. When
you take out 1% to 2% per annum for management
and 20% of profits, you'd better be good -- you'd
better be better than good."
Thompson further speculated that hedge funds may
"deflate" before the market does. But lately, it's
looked like a classic chicken-and-egg conundrum.
A Tiger spokesman was not immediately available to comment.
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