The best-performing hedge fund in the world last year, in terms of the total amount of profit generated for investors, was
Chase Coleman (Trades, Portfolio)’s Tiger Global. The firm earned $10.4 billion in 2020, more than any other large hedge fund.
The most profitable fund
This was not a one-off. Tiger Global has been one of the most profitable hedge funds around for some time. Since its inception in 2001, the firm has earned its investors $26.5 billion, which puts it at number 14 on the list of the most profitable funds of all time.
One of the ways I try to grow and develop as an investor is to review the performance of other successful investors and funds in an attempt to understand how they created the track records they have.
Robertson founded Tiger Management. With just $8 million in capital at inception in 1980, by 1998, the fund was the second-largest hedge fund in the world, managing $22 billion in capital.
When Robertson closed Tiger Management, many of his former employees went out on their own. These became known as the so-called “tiger cub” hedge funds, which Robertson funded with seed capital. Tiger Global was originally called Tiger Technology, and Coleman received seed capital of $25 million from his mentor.
To understand how Tiger Global has become so successful, we first have to understand the mentality behind Tiger Management’s success.
Buy great companies
Robertson’s strategy was simple; buy great companies at attractive prices and short bad companies.
His hiring process was a little different. Rather than concentrating on the best and brightest, the fund manager set out to look for intelligent but well-rounded people. He didn’t want specialists. Tiger Global was looking for a collection of people to build a competitive, curious and thoughtful culture.
Coleman apparently fit this model, and he has taken the lessons learned at Tiger Management on to Tiger Global. As well as having the right mindset, two other factors seem to have been key drivers of the firm’s success over the past few decades.
First of all, the firm was a relatively early mover in the technology space. Coleman and his team correctly saw the opportunity emerging in technology and moved quickly to take advantage of that.
This focus on technology also helped the company set up an early presence in the venture capital industry. It set up its first venture capital fund, Tiger Global Private Investment Partners I, in 2003 with $76 million in capital.
Li Lu (Trades, Portfolio) has said previously that his early experience with venture capital and private businesses helped prepare him for life as a hedge fund investor. I do not think it is unreasonable to say Tiger Global had the same advantage.
Between 2003 and 2011, the group raised several billion dollars of venture capital through six funds. This would have given the business an unrivaled insight into the blossoming technology sector at a time when many other investors were still focusing on old-world companies.
This insight, coupled with Tiger Global’s preference for technology stocks, could have acted as a double tailwind. Not only could the company see which public technology stocks were taking market share, but it could also, in conversations with private companies, determine how these public and private businesses were interacting and the potential they could unlock.
This is a classic case of an investor sticking to what they know. Coleman and his team always had an advantage when it came to technology. They sought to improve their advantage by launching private equity funds when the technology sector was just starting to turn a corner. This provided them with a unique information advantage, which they were able to exploit.
Read More: How Tiger Global Became One of