Tiger's Robertson Overhauls Fund to Reverse Losses (Update3)
(Adds background on Robertson.)
New York, Oct. 11 (Bloomberg) -- Later this month,
billionaire investor Julian Robertson, founder of the world's
second-largest hedge fund, will treat his wealthy clients to his
annual black-tie dinner-dance at the Metropolitan Museum of Art.
The crowd may be tougher-to-please than in recent years,
though. Robertson's Tiger Management LLC's net assets shriveled
by almost two-thirds the past year to $8 billion from close to
$22 billion last August. Almost half of its professional staff is
new. The vaunted stock picker's investments plunged 44 percent
and investors pulled out another $5 billion.
In the annual meeting the afternoon of the Oct. 28 gala,
Robertson will seek to reassure investors the moves he's made
will reverse the losses. He's added a core of 12 senior analysts
to whom he's delegated some stock-picking, and cut the amount it
borrows to invest in stocks from 2.8 times capital to 1.4 times.
He's also limiting how often investors can withdraw money.
``For the past year we've played defensive ball, reduced our
leverage and bore the cost. Now we can get back to investing
offensively,' said Philip Duff, chief operating officer of the
fund group since September 1998, in an interview.
Investors
Investors said they're concerned Robertson may end up giving
too much control to his lieutenants. They said they invested in
Tiger because it was an autocracy that produced average annual
returns of 39 percent since its founding in 1980 through 1997.
It's posted three money-losing years, in 1987, 1994, and 1997.
When the 67-year-old Robertson retires, however, Duff says
that no single individual will run the show, and that the
portfolio will likely be broken up into component parts like the
12 teams.
Veteran clients are sticking by Robertson, even after he
wrote in a letter to investors this month, ``These results
stink.'
The University of North Carolina at Chapel Hill, Robertson's
alma mater, has been an investor since 1991. The investment board
voted last month to remain in Tiger, which manages $30 million of
its endowment.
Robertson, a native of Salisbury, North Carolina, has
bounced back before. In 1994, Tiger lost 9 percent and then
returned 17 percent the next year, less than half his historical
average. In the following two years, the funds gained 38 percent
and 69 percent respectively.
Much of the money that flowed out as the fund's performance
sank was the same money that flowed in as returns reached 115
percent in 1997 and early 1998, Duff said.
Tiger's largest holding, U.S. Airways Group Inc., has
dropped 39.9 percent in 1999. Tiger owns 22.4 percent of the
airline, a position it began building in 1996. Waste Management
Inc., its 10th largest holding, has plummeted 61.5 percent.
Federal-Mogul Corp., of which Tiger owns 12 percent, has fallen
51.5 percent.
To keep the so-called hot money from returning, Tiger, which
now lets investors withdraw money quarterly in its largest funds,
will only allow them to exit twice a year, beginning next March.
Under the new plan, no more than a quarter of Tiger's assets
under management will be at risk for redemptions, Duff said.
Roughly half of Tiger's assets are in funds that have a lock-up
until July 2002 or are held by insiders. The remaining half is
split between offshore and onshore funds that have staggered
fiscal years.
Portfolios
Inside the firm, Robertson and Duff are managing the
reorganization of the investment staff that lost almost half of
the 50 investment professionals it had in 1998. Senior traders
Andreas Halvorsen, head of equities, and Chris Shumway, head of
Tiger's bond and currency team, along with 19 other investment
professional have left the firm or been fired.
Fourteen have joined, including Wall Street veterans Thomas
Kurlak, a former Merrill Lynch & Co. semiconductor analyst, and
Paul Brooke, a health care analyst who came from Morgan Stanley
Dean Witter & Co.
Under the new organization, Tiger has 10 industrial teams, a
currency and bond team and another investing in commodities.
Since March, each team, run by experienced analysts such as
Kurlak and Brooke, has been given the opportunity to invest a
small portion of money. Six teams, including health care,
technology and financial services each manage about $200 million,
which together account for 15 percent of net assets.
The team leaders report to Robertson, who makes the final
investment choices for the main portfolio. In their own pools,
these analysts call the shots, but only about 1 percent of assets
are in stocks not included in the core portfolio.
Cash Flow
Like most hedge funds, Tiger has a high-water mark, meaning
that if Robertson loses money over a year, investors don't have
to fork over the 20 percent performance fees until he's earned it
back. Tiger dropped 4 percent for the year in 1998, and if its
current loss remains at 23 percent this year, Robertson would
have to earn 35 percent before investors pay.
``A number of our investors are very concerned because few
hedge funds have earned their way out' of a high-water mark,
mostly because they didn't have the revenue to pay their
employees, Duff said. ``We've set aside enough money so we can
continue to pay our best people at or above Wall Street
standards.'
Eberhard Faber, one of Tiger's original investors and former
owner of the pencil company that bears his name, is keeping his
money in.
``Most of the short-term money has run off and that was one
of the things causing poor performance' as Tiger was forced to
sell positions to raise cash, he said. Plus, ``Julian Robertson
isn't going to quit on a loss. He'll bring it back.'
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