Tiger Global, hit by $17B in hedge fund losses, has nearly depleted its VC fund | Hacker News Reader

Tiger Global, hit by $17B in hedge fund losses, has nearly depleted its VC fund

techcrunch.com

160 pointslxm90 comments

Usually love Connie’s writing, but this is a pretty bad headline. It’s factual, but conflating 2 facts that are not casual.

Tiger didn’t deplete their VC fund because of their hedge fund losses, that would be an incorrect understanding. The funds are insulated from another. Tiger simply deployed a lot of their VC fund already, hence depleted.

Separately , Tiger—like SoftBank— levers their VC funds, so it’ll be interesting at which point JP Morgan and other underwriters start calling in the margin if private stakes are written down.

FT direct source for hedge fund losses: Tiger Global hit by $17bn losses in tech rout https://on.ft.com/37uCacr

Do you know what kind of size they lever with? Because if JPM is on the hook for like $20bn on 2:1 leverage, then they're already looking at negative net equity.

Bloomberg cites $4B exposure for JPM.

https://www.bloomberg.com/news/articles/2022-03-18/as-tiger-...

Sorry, how can they lever their VC funds, surely with VCs you’re getting highly speculative valuations and terrible liquidity? That sounds like a terrible thing to lend against?

Not too many banks do it, but it’s conservatively done, 3-6pts above risk free and at 10-20% of collateral: https://www.bloomberg.com/news/articles/2022-03-18/as-tiger-...

It’s how you get here.

https://en.wikipedia.org/wiki/Minsky_moment

> that are not casual

typo: casual -> causal ?

I wonder how much auto-correct is going to cause relatively rare words with a small edit distance from common words to slowly leave the English language.

British english will become extinct in few years due to American english based auto-correct which is enabled by default on all systems when you opt-in into auto-correct feature.

autocorrect

Was on mobile, corrected the word.

Not sure I agree. As an American living in the UK I constantly battle autocorrect to spell it "rumor" or "favor," lest someone think I've gone native.

As someone in a similar situation I have mostly internalised the unexpected u, but the ones that still end up getting me (and which I had to go back and edit in this very sentence) are the s/z swaps in the ise/ize trigraph.

Yes! And defence/defense. Honestly I've forgotten which of those is which.

That's not true. As British copywriter working mainly for U.S. tech companies, I often have to manually change autocorrect from British English to U.S. English and back again. Every laptop and phone I buy is initially configured for British English.

Sounds like a very direct link, then.

Huh, few months back this [1] was shared here[2] and also this[3]

The import was Tiger is somehow playing investment game at totally different level. And they are totally upending whole VC model with their speed of investment and little due diligence. It definitely felt a whole lot of bullshit to me.

1. https://www.readthegeneralist.com/briefing/tiger-global

2. https://news.ycombinator.com/item?id=29296904

3. https://randle.substack.com/p/playing-different-games?s=r

Loved this from [3]:

> On the contrary, we are seeing the emergence of a new velocity-focused strategy in the venture/growth3 asset class that will fundamentally change the way that venture capital is raised.

Or, and I'm just spitballing here, capital was cheap because interest rates have been at all time lows for years. You only find out which one it is when interest rates start to go up.

Tiger probably did get pretty good managment fees so they are not losers here.

Yeah, I mean if they are burning whole lot of dumb money, it can be good in a way.

Weirdest quote the TC article was "In the meantime, Tiger Global, which prides itself on its due diligence"

They are notorious for outsourcing their due diligence and often not even paying attention to it. They pride themselves on moving fast, not diligence.

I liked the investment thesis of "get founders money and get out of their way" and hopefully other VCs learned something from it, but they certainly lacked a lot of control in how they operated.

> I liked the investment thesis of "get founders money and get out of their way"

It's a great theory. I read somewhere Masayoshi Son looks in founder's eyes to decide if they are trustworthy, same with George W Bush who would look into other leader's eyes to decide if they are someone he can do business with.

For those who don't get the reference, in 2001 President George W. Bush had this to say about Vladimir Putin:

"I looked the man in the eye. I found him to be very straightforward and trustworthy. We had a very good dialogue. I was able to get a sense of his soul; a man deeply committed to his country and the best interests of his country."

Your implication, presumably, being that it is factually a poor way to judge character.

Of course it is, if other side knows this they will train and react in a way to appease. And a KGB apparatchik should know a trick or two about psychology, manipulation etc. Especially quirks of US president, the counterparty in global political games.

He may be internally with himself still working the same 'patriotic' game, but currently in some very f**ed up psychotic way.

But to be honest, I don't believe it - he stole half of Russia, continued and improved system of state-managed corruption and theft, russian population is a poor miserable one more than ever. He clearly doesn't care for murdering fellow close slavs, and other russians neither. But billion dollar worth pallaces and superyachts are fine for 'great leader' I presume.

Actions speak for themselves more than some shallow talks or staged trained looks.

Or maybe its just the good old 'power corrupts' theme. He certainly is just a mere shadow of his former self, at least the part public can see.

I am skeptical any one person , even a typical president can take that kind of decision on their own, however objective or well rounded the metric it could be .

There are teams of career diplomats and intelligence professionals and variety of external stakeholders including business lobbyists, other foreign diplomats and those equations go into a diplomatic decision to publicly endorse someone.

Bush was very much establishment and not an unpredictable wrecking ball like Trump, that was unimaginable 20 years back.

More likely the decision was taken at the point to publicly support Putin and bush articulated it in this rather poor fashion.

The intelligencer community at the time may have had hope that the other power in Russia like the oligarchs to keep Putin in line. Remember this was before Georgia , Chechen and Crimea ; Putin hadn’t yet developed the reputation and consolidation of power he has today.

Considering that Putin never really lied about his goals, despite being extremely under handed and secret with his methods, W's judgement wasn't too far off I'd say.

There seems to be a lot of disagreement and bad judgement around "best interests of his (Putin's) country".

I can't tell if you're being sarcastic.

I don't mean about looking someone in the eye, but I do mean cutting through a multiple months long dance to get someone money when they are in a full sprint growing their business, or sitting on their board and meddling when you don't have experience operating a company. I think VCs can learn something from that.

For anyone interested in further reading:

https://www.wsj.com/articles/tiger-global-closes-on-12-7-bil...

https://en.wikipedia.org/wiki/Tiger_Global_Management

This article is also a good explainer for Tiger's high-velocity capital deployment strategy - https://randle.substack.com/p/playing-different-games

My guess is they're rapidly trying to deploy their capital before investors rescind their pledges. Once it's deployed, they can collect fees on it for decades.

Investors can't rescind their pledges that easily. Once committed if you do not honor a capital call there usually are pretty stiff penalty clauses for not fulfilling your obligations.

I know it's not easy, but generally the penalties are less than say investing in something that's 3x overvalued and will be locked up costing 3% a year in management fees for 15 years.

Interesting, ok, I'm a party to two such agreements, I'll have a look to see what exactly would be the consequences in a case like that. I ran the figures when I made the commitment, basically wrote off the investment on day one because I see VC investing as a very advanced form of buying lottery tickets, it is so hit-and-miss that the only way to spread your risk is to have as wide a portfolio as possible but I never considered the scenario where a fund is so badly run that they will quite literally burn your cash. The funds I'm in are pretty respectable.

I lived the 2008 crisis, so maybe I'm overly pessimistic about investment managers from what I saw back then. But it seems to me that it's easy to appear respectable when everyone is making money, but true honor is tested in times like these. I mean, look at Melvin, right? He was a wunderkind of how to do things right until he lost some money, and now he's threatening to close his fund and immediately launch a new one, just so he can reset his high water mark. I got a call once from a VC fund manager who wanted to buy some private stock I owned well over the recent raise price, because he had unused cash left over that would otherwise go undeployed. There's just all sorts of slimy things that happen, and Tiger deploying tons of cash into deals that no one else except Insight will do looks a little skeptical.

These are excellent points and I will definitely act on them. Thank you for the wake up call. Fortunately the amounts involved are modest (a few hundred K) but still it is a thing to be more aware of. Another bit of good news is that I am close enough to the fund managers that I can see what they are up to and I have not seen any 'false moves'. But it would still be a very good idea to refresh my knowledge of the various obligations and how the terms might be abused. On the plus side, some of the people on the LP side are heavyweights that would likely be able to make a significant problem for the fund managers if they ever mis-stepped.

The tech recession is going to be great for Apple's back to the office plans.

At the risk of turning this entire comment section into RTO debate, I want to sorta second this.

RTO will be so much easier when the job market is flooded with failed start-up engineers and the tech industry cools off.

They're much more concerned with unionization and wage increases further down the economic ladder. Tech worker RTO isn't their primary concern.

It'll be great for every business's back to office plans. If we really are entering a major tech downturn, employers are going to be in the driver's seat in a way that will have the HN "I would never ever work for a corporation that requires in-office/leetcode/etc." crowd reeling.

Smart corps should have realized by now that offices are a huge, mostly unnecessary cost. There will be a bunch of places not forcing RTO.

Smart corps should have realized by now that open office spaces are disliked by employees, are noisy, etc. Looks like there aren't very many smart corps...

True. But the difference here is that the corp directly and immediately benefits, by reduced costs. It's easier to be smart if it means more money in your pocket.

Cost is probably part of why open offices were a thing anyway, reduced costs and more flexibility. So incentives are aligned with WFH, but weren't with open office bullshit. That should be the difference here.

Luckily I’ve been planning to jump ship early.

A "tech downturn" isn't the same thing as a lack of work for programmers. The volume of work to be done across all industries is immense, and it's profitable for everyone.

Can’t speak for the US but the EU is literally throwing hundreds of billions of euros right at this moment for “digitalization” and such as part of their post-pandemic recovery plan, it’s a gold rush (relatively speaking) for IT-related people who know where to look.

I think you'll find that "tech" has embedded itself into every business down to the very core. If anything what we'll see are companies that never made any economic or legal sense (uber, airbnb, coinbase) go under with simply churn in the social media space (bytedance supplanting meta). I think tech workers who can actually engineer/code will always have a strong place in the market, though I do bet that we will see an end to offers over $200k for all but exceptional ICs

Tech might be "embedded" but that doesn't mean their stocks had reasonable valuations. Small/mid cap tech is down 50-75% because they weren't. Every Apple employee is watching their stock portfolios melt down and AAPL holding up relatively well. Bargaining power is shifting from employees to Apple in real time. Suddenly job security is more important than WFH.

VC will follow the public markets, as it always does. Valuations will tank and funding will dry up.

What would make you think that tech offers will go down? Why would a company making X revenue per engineer not offer a maximum of something like 80% of X?

Not to mention inflation and low unemployment numbers. even if what you're saying is true, how could it stay that way for longer than a year or so

Because they might be able to get the labor they want for less than 80%?

Because revenue doesn't matter right now. Net income after taxes (NIAT) does.

Engineer salaries have been subsidized by VC and low interest rates. Now that that's drying up layoffs are coming and under-funded companies will start folding. Labor will (hopefully) be efficiently reallocated towards companies that can actually generate profits from that labor. The number of tech companies that can do that are few.

The ratio of hands on ICs to sales/managerial "mouths to feed" is going to be under pressure.

57k in 1980 dollars is the same as 200k in 2022 dollars. Also median american wages have gone down over time when inflation adjusted.

I think this is the end to the 450-500k IC offer

Median real wages have not declined since 1980, certainly.

Yes they have. Real wage stagnation and declining real wages for lower wage earners, especially among men, has been the economic story for the past 40 years, thanks to deregulation and deindustrialization. This isn't even a controversial idea. It's just data.

https://sgp.fas.org/crs/misc/R45090.pdf From the first bullet point of the summary:

"By contrast, middle (50th percentile) and bottom (10th percentile) wages grew to a lesser degree (e.g., women) or declined in real terms (e.g., men)."

To be clear, in the paper you cite, it says that median wage has decreased 3% for men and increased 28% for women. Overall, clearly an increase.

Here's the chart that most people cite when taking about wage stagnation: https://www.weforum.org/agenda/2019/04/50-years-of-us-wages-...

That chart (which isn't actually median wage, it's excluding supervisory workers) shows flat wages between 1973 and 2019. But it shows rising wages between 1980 and 2019.

It is important to note when people talk about wage stagnation that median wages have risen pretty steadily since 1997, with an extended period of decline or stagnation before that.

1980 median family wages was 21,020, or 73,341 in 2022 dollars.

Current median household income is 74,099.

But! 53% of households have dual income in 2022. Up from 51.8% in 1980.

The net is wages are then depressed from 1980 levels.

https://www.census.gov/library/publications/1982/demo/p60-13...

You don't need to try to calculate wages from household income, which are a complicated relationship for a variety of reasons. Both I and the previous poster provided actual wage data, which shows (despite the previous poster's gloss) that median wage increased from 1980 to present.

(EDIT: For whatever it's worth, in general the reason why people who talk about wage stagnation focus on wages instead of household income is that median household income has steadily increased over the last 50 years in a way that median wages haven't. I don't have time to dig into why your two datapoints aren't showing that, but here's a real median household income graph (it only goes back to 1984, didn't find one immediately that goes to 1980). https://fred.stlouisfed.org/series/MEHOINUSA672N

In terms of median wages, people gloss the graph I previously linked as "stagnation," but it's not -- it's a drop from 1973 to ~1997, then a rise from 1997 to current (with some fluctuation mostly around the Great Recession of 2008). It's true that 1973 is approximately equal to 2019, but when people hear that wages "stagnated," they generally take away that it was mostly flat in that time, which it wasn't. So they then imagine that from start of any time in that time period to 2019 is mostly flat, which again, it isn't.)

So far this isn't a recession and isn't a tech recession.

There's 3.6% unemployment, 11.5 million job openings in March, up from 11.3 million in Feb, which is twice the number of job seekers. The US added 431,000 new jobs in April.

There was a blip in GDP but it can be explained by bullwhip effects still rippling through the economy from the pandemic, and china lockdowns.

And mostly the negative effects we're seeing here is hitting all the froth (unicorns, crypto, VC, overpriced tech stocks).

Unless there's contagion from something really large popping soon, this looks more like a correction.

Can someone explain to me what this means for startups where Tiger Global is an investor?

Edit: It's a genuine question. I was planning on interviewing at one of the startups where they're an investor.

More risk as they might not reinvest in the startup, which is not a good signal for other potential investors. Normally you want to get another ticket from the main investor for the next round.

Having said that it's not like the firms are doomed, they might still get other money or even make money themselves.

> what this means for startups where Tiger Global is an investor?

On average, a lower next-round valuation and layoffs as burn is reduced (on account of Tiger no longer being around to juice the next round).

I can't see the article because it redirects to (through?) a blacklisted tracking domain: https://guce.advertising.com/collectIdentifiers. Super strange UX. But I guess this will become more prevalent with trackers, to avoid being a "3rd party" provider.

Didn't they have a lot of Russian tech in their portfolio as well?

Guaranteed the guys running that fund made hundreds of millions if not more, even crazier is a lot of that money is probably people’s pension funds. Hope you’re happy to pay for someone’s yacht!

Is your point that head fund managers only deserve to get paid if they are successful? Or are you trying to insinuate Tiger Global's managers were negligent/reckless with the money?

I think they're point out that when you're making millions of dollars a year you have an incentive to get a little reckless to try to eek out better and better returns. Sure you want to keep the gravy train moving, but if you're worth $50 million, and you the have the choice between playing it safe for $2 million, or rolling the dice and maybe making another $50... you're probably not going to be dissuaded because it's a pension fund's money.

You've already got yours so what's the worst that can happen?

Do you have actual reason to believe Tiger Global did this, or this all baseless speculation?

Tiger Direct is a retailer. I think you mean Tiger Global Management.

I did, my bad. A lot of your comments are marked dead (I vouched for this one), you might be shadowbanned.

“Show me the incentive and I will show you the outcome.”

— Charlie Munger

He has evidence of excessive risk taking (Tiger Global's returns), and an incentive structure that makes it logical for them to behave this way. That alone isn't "baseless." Also, it's Tiger Global, not Tiger Direct.

> He has evidence of excessive risk taking (Tiger Global's returns)

Loss does not prove excessive risk, even excessive loss. There is always a risk of loss in any investment.

Whether this was 99% going to happen, or Tiger Direct was very safe and this is a 1/10000 case of bad luck cannot be determined by looking at the amount lost.

> He has evidence of excessive risk taking (Tiger Global's returns), and an incentive structure

How are Tiger Global’s incentives different from any other VC? Even the majority of hedge funds have a 2+20 structure with similar incentives.

>>are you trying to insinuate Tiger Global's managers were negligent/reckless with the money?

From the article.

=>Tiger Global’s hedge fund assets have been so hard hit that the outfit has in four months erased about two-thirds of its gains since its launch in 2001.

=> that’s just twice the return they would have received by investing in the S&P 500 over the same 21-year period

Not sure how to interpret these numbers.

I interpret that as: they made 6x returns as the S&P, but then had a bad quarter and are down to 2x returns.

Still sounds pretty good.

I don't think you can go -2x by pressing some wrong button on they keyboard.

Its more like they've been making mistakes over years which seem to have culminated in one event this quarter.

I’m sure LPs are very happy with 25% IRR.

But this is disingenuous (at best) marketing speak - the 25% IRR is blended over the entire fund.

LPs enter at different times into Fund 1, 2, 3, up to Fund 15 now. As an LP, your specific fund that you entered primarily determines your returns (depends on structure, there can be some blending). If Fund 13 invested into a bunch of failing businesses that group gets hurt massively.

So while 25% IRR is very fantastic, that's not the full story. There are specific Fund numbers that are getting great returns and others absolutely bleeding.

You would normally break out the IRR per individual fund for performance analysis. Blending it will hide variance (which usually is tremendous and may cause a single well performing investment in fund 1 to optically lift up everything else when in fact it doesn't matter at all except to those LPs that invested in fund 1).

IRR doesn't mean a thing though, money returned over the run-time of a fund is a much better metric to figure out if LPs are going to be happy or not. A high IRR can still result in very little money returned because it all depends on whether or not the valuation metrics used to compute the IRR were accurate and whether the value created according to the IRR can be captured or not.

Both these can be true at the same time

- A large percentage of Tiger Global is pension fund money

- Pension funds have an extremely small % of their portfolio in Tiger or other high risk high tech investments vehicles.

Because pension funds are so big.

Millions? You mean billions.

You know your incentive structure is wrong (and people will never learn) when hedge funds don't actually hedge (their long/short fund fell the same as their long only fund), instead essentially gambling your money for you, taking 2 & 20 off the top for their trouble, while you eat 100% of the losses.

Well, one of them paid $132m! for a house last year

https://www.forbes.com/sites/amydobson/2021/02/12/one-of-the...

These are Tiger Global's top 10 holdings at the start of 2022: ServiceNow, Sea Limited, Microsoft, JD.Com, CrowdStrike, Carvana, Facebook, DoorDash, Snowflake, Nu Holdings

That looks like holdings for their public equities fund. The article is about their venture fund, a separate vehicle.

The loses are from their hedge fund. The article is about the venture funds and hedge fund.

And they charge 1.5% per year of the net assets to invest your money in these stocks.

No, they don't. It's a separate entity.

They actually charge 3/30

> they charge 1.5% per year of the net assets to invest your money in these stocks

This varies wildly LP to LP. These numbers are negotiated case by case.

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