The American investment fund Tiger Global has lost $ 17 billion since the beginning of the year. An unprecedented defeat for one of the champions of investment in the technology sector, which says a lot about the state of the market and the economy as a whole.
One of the biggest stars of finance – a hedge fund that has subscribed to high-yield investments – has just received a historic slap. Tiger Global has lost $ 17 billion since the beginning of the year, the Financial Times estimated in an article published on Tuesday (May 10th).
The investment fund has never suffered such losses in such a short time, confirms the American economic channel Bloomberg. Tiger Global’s troubles overshadow the defeat of Melvin Capital, which lost $ 7 billion in a few days in the GameStop case, and the Bridgewater investment fund, which saw $ 12 billion evaporate at the start of the Covid pandemic. -19.
The adventures of one of the “greatest financiers of all time”
“This is a very significant loss and even more impressive for Tiger Global,” says Alexander Barades, market analyst at IG France. In its 21 years of existence, this American hedge fund has lost money only twice, once during the 2008 financial crisis. “The average annual profit for customers is 20%,” – said the analyst.
Thanks to a rich history of success in the stock market, its founder Chase Coleman was among the 15 most important financiers of all time according to LCH Investments, a company that analyzes the effectiveness of investment funds. In 2020, he was still the highest-earning investor at $ 3 billion a year, according to Bloomberg.
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Hence the surprise caused by the staggering losses of Tiger Global. “In four months, this investment fund has destroyed almost three-quarters of all profits made since 2001,” the Financial Times reported.
The defeat is mainly due to the reversal of the trend in the choice of this investment fund: high technology. The fall of the Nasdaq (New Technology Stock Market Index), which has lost more than 20% of its value since the beginning of the year, and the fall in the stock market of Chinese technology groups have hit his portfolio hard.
“This is one of the investment funds most prone to action in the innovation sector,” sums up Alexander Baradez. Tiger Global has earned a reputation as a leader in all trends in the technology sector by investing in Facebook, Airbnb and lesser-known nuggets of the Chinese and European technology scene.
Too prone to the technology sector?
Tiger Global’s misfortunes are a testament to how fast the stock market is changing. “This shows that even experienced investors who know their sector like the back of their hand were surprised,” said Andrew Beer, an analyst at Dynamic Beta, in an interview with the Financial Times.
Other funds specializing in new technologies have experienced a similar trajectory without suffering such impressive losses. Investments made by the management company Ark Invest, which aims to invest in innovation, “have lost 50% of their value since the beginning of the year,” said Alexander Barades.
Tiger Global, Ark Invest and others are similar to the cicada from the famous fable of Jean de Lafontaine. These funds “benefited from a decade of continuous growth in technology, a sector that seemed immune to all crises and which, moreover, was one of the great winners of the pandemic,” sums up Alexander Barades.
They spent a lot of money, confident in the happiness of Facebook, Apple, ByteDance (Chinese parent company TikTok) and other startups, and “did not think to hide if the growth of this sector stops,” explains an analyst at IG France.
However, this turnaround took place at the end of last year, and these high-ranking stockbrokers did not want to believe it for too long. “Seeing, for example, Chinese technology companies lose 50% of their value, some thought they could take advantage of it by investing cheaper, making sure China came to the rescue of these companies,” said Alexander Barades. But Beijing has allowed these groups to continue to sink into the red.
Victim of the fight against inflation
Climate change in the stock market is largely due to the US Federal Reserve, which changed course in a few months. In October last year, the Fed was not very concerned about inflation, recalls Alexander Barades. And then at the beginning of the year, she said that her main priority from now on will be to calm the price spike, which prompted him to raise rates several times.
What does the fight against inflation have to do with Tiger Global’s misfortune? For a long time, rates were so low that the only profitable investments were the most risky assets – cryptocurrencies and stocks of technology startups – so everyone wanted them.
But rising interest rates mean that other investments, such as bonds, are also starting to look interesting. If risky assets no longer pay off, the game may no longer be worth the candle. “Especially in the context of the current economic downturn, when technology groups are announcing less impressive financial results [comme Facebook et Netflix, NDLR]”, – clarifies Alexander Baradez. These risky stocks were no longer used, so they lost value.
Therefore, Tiger Global’s failures seem to be the price to pay for a sudden entry into this new stock market and a more cautious financial reality. And this may be just the beginning. “Technology was the first to suffer from this slowdown. Other sectors are also beginning to suffer, “said IG France, an analyst who fears the effects of the infection. Other funds scorched by Tiger Global’s losses will begin to unload their most risky assets, accelerating the downward trend in the stock market. How far? If the movement accelerates, it may spill over into the real economy, and these groups will not be able to raise the necessary money in the markets to finance their growth.