Tech-focused hedge fund Light Street Capital Management had a successful betting year in 2020, along with Amazon.com Inc. and Alibaba Group Holding Ltd.
Those were the best times. Unfortunately, along with other once-high-flying stock hedge funds, the firm is coming off the second year of losses that wiped out billions in clients’ wealth.
More than 40% declines during the previous two years, as mentioned by people familiar with the returns, were posted by Light Street, Whale Rock Capital Management, Tiger Global Management, and Perceptive Advisors. Because investors pay lower or no fees on gains once they’re made whole, these losses could prove problematic for smaller firms.
The back-to-back descent at some stock funds created enormous losses for clients because many techs- or healthcare-focused funds created capital when firms like Facebook parent Meta Platforms Inc., Tesla Inc., and Amicus Therapeutics Inc. were flourishing.
Yet as inflation rose late last year, these same shares dropped— and few funds raised their short bets to make a profit from the fall.
Chase Coleman’s Tiger Global hedge fund fell by 57% over the previous two years. In dollar terms, it erased all its profit since the end of 2018. Nevertheless, as of Sept. 30, the firm handled $15 billion across its hedge and long-only assets, with an additional $43 billion in private ventures.
Whale Rock owner Alex Sacerdote shot down by 47% over the last two years. He now manages about $6 billion compared to $12 billion at the end of the previous year.
Glen Kacher’s Light Street was the hit hardest. The firm oversaw about $2 billion by the end of 2021 and lost almost two-thirds of its value for two years.
Joe Edelman’s Perceptive Advisors, focusing on the life-sciences industry, tumbled about 49% simultaneously.
Stark Contrast
This year’s accelerating declines at many equity hedge funds contrast with the rest of the industry, which outperformed diving stock and bond markets in 2022.
Jon Caplis, hedge fund research firm PivotalPath’s head, stated, “If you just glanced at the headlines, you’d guess it was a devastating year for the industry. Yet our composite index is the most substantial it’s been in years,” with the change in monthly performances shallow compared with historically significant changes in the stock market.
According to the PivotalPath index of 1,157 funds, on average, hedge funds dipped by 1% this year through November. That compared with a 13% tumble in the Bloomberg US Agg Index and a 14% drop in the S&P 500.
Some stock fund managers that saw deep losses opted to shut down their doors this year.
After mainly losing half of his client’s investments in less than two years in May, Melvin Capital Management was shuttered by Gabe Plotkin. Some complained that he didn’t try to bring back some of their money while collecting massive fees for the past six years while posting 30% annualized returns.
Carvana Wipeout
This year, online used-car seller Carvana Co. took a grim toll on the hedge fund industry. A one-time hedge fund darling now trades for lower than $4, which hit a high of $376.83 in August 2021.
Two companies, Clifford Sosin’s CAS Investment Partners and Ben Stein and Zachary Sternberg’s Spruce House Investment Management, invested in Carvana, which held on through the last quarter and marginally added to their positions.
According to the company’s most recent regulatory filing, the car retailer accounted for 24% of Spruce House’s $550 million in US-traded companies in the third quarter.
At the end of the third quarter, CAS was Carvana’s fourth-largest shareholder. The investment company lost around 70% this year through September, primarily because of its Carvana bet, which contributed to one-quarter of its investment earlier in 2022.
- Published By Team Timeswire