In today’s Finshots, we tell you about everything going on at the legendary private equity firm.

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The Story

Psst…did you hear about that secret exposé on Tiger Global?

In case you haven’t, it’s an anonymous 9-page note that threatened to spill the beans on one of the biggest private equity-cum-hedge fund firms in the world. There were whispers that it was a draft of a story that the New Yorker was working on. And that Tiger Global was even trying to stop it from being made public.

So, we got our hands on it. Because we were curious too.

And what did it say, you wonder?

Here’s the gist of it.

  1. Apparently, people who’ve invested money with Tiger Global are unhappy. They’re trying to withdraw their money. So Tiger Global is succumbing to this pressure and trying to find buyers for many of its startup investments.
  2. It allegedly took money from its public market fund (that invested in listed companies) and funded startups that were private. And when people wanted money back, Tiger couldn’t sell the private investments easily.
  3. There’s also a bit saying that the regulators in the US are looking into them for intentionally deleting internal emails. Emails that were about trying to find ways to squeeze more fees from their investors.

Not a good look for Tiger Global, huh?

But here’s the thing. It turns out that the memo is likely fake.

Yup. On Saturday, Tiger Global refuted the authenticity of the note. They said that a disgruntled former employee was simply trying to stir the pot. And then the New Yorker poured cold water on it by denying the fact that it came from their stable.

The whole thing was quite anticlimactic.

Okay. So you might be wondering now — “If it’s fake, why’s Finshots talking about it?”

Well, here’s the truth. The memo might be fake. But the exalted PE firm has been in a spot of bother for a while now. So we have to talk about it, no? Also, it’s a story of the trials and tribulations in the private equity world.

Let’s take it from the top then.

Before Tiger Global, there was Tiger Management. In 1980, a fund manager named Julian Robertson set up a firm to buy companies listed on the stock exchange. His strategy was simply — to buy undervalued stocks and sell overpriced ones. And for 20 years, Robertson delivered superlative returns in his fund — 25% every year. He became the stuff of legend.

But in a way, that staunch belief led to his final downfall too. You see, he didn’t touch tech stocks in the run-up to the tech bubble of the late 90s. And when rivals were sitting pretty, his fund was down and out. Eventually, he decided to pull the shutters on his glorious career.

And when he wound down his fund in 2000, he passed the baton over to his protégés aka the Tiger Cubs. They were to go out into the world and set up their own firms. And out of that emerged Tiger Global led by Charles Payne “Chase” Coleman III. Robertson even seeded him with $25 million so that he could hit the ground running.

Now the strategy was the complete opposite of what Robertson had stood for. Tiger Global didn’t care about price. They were aggressive and would go after anything they believed had potential. And they weren’t early-stage investors either. They’d come in at a later stage. They’d buy private companies and public companies. They even used their multiple funds to control the playground. For instance, they’d back one company with the VC fund. And just before the IPO, they would use their hedge fund to pump in more cash and drive up valuation.

For a long time, this worked. It looked like everything they touched would turn to gold. And as their legend grew, they attracted a lot of cash — they managed $95 billion across multiple funds.

Tiger Global was at the peak of its game.

But not everyone was happy. Behind closed doors, other VCs were kind of disgusted at how Tiger was distorting the market with its cash pile.

And last year, everything turned topsy-turvy. Tech stocks crashed — both in the public and private markets. All their funds received a beating. And Tiger Global’s funds lost over $40 billion in value. It was a massive loss. Some say it was the highest the industry had ever seen.

Alongside this was another set of complaints.

Apparently, Tiger Global was indulging in a practice that many didn’t consider ethical. They would raise Fund A and invest in a company. Then it would raise Fund B and invest more money into the same company. And with each new investment from the Tiger stable, it would bump up the valuation. And this would make the older fund look good on paper.

And you can bet that investors weren’t happy with this outcome. So when Tiger Global tried to raise $6 billion for a new fund this year, investors gave them a cold shoulder. They didn’t write out the cheques. And the fund just about scrapped together $2 billion.

Tiger Global’s roar was turning into a soft purr.

Now there’s one more thing.

Let’s believe media reports talking about how Tiger Global is indeed trying to salvage its reputation and offload some of its portfolio investments. It needs to find buyers on the other side. But it’s not going to be that easy. And David Erickson, a finance lecturer at Wharton has two theories to explain the state of the private equity industry today.

Firstly, he thinks FOMO has given way to DWTCAFK.

We’ve written about this before but it bears repeating. Bubbles are caused when people have FOMO (Fear of Missing Out). They don’t do the due diligence. And they rush into the deal because they think the wisdom of the crowd will work in their favour. But it doesn’t.

And the opposite of FOMO is DWTCAFK. And if you’re thinking what the heck that is, it’s simply an acronym for “Don’t Want To Catch A Falling Knife”.

Yup, finance folks love these silly acronyms.

Anyway, he points out that after crypto firm FTX collapsed last year, PE funds became the butt of all jokes. Because they were fooled into investing at higher and higher valuations as each month passed. Sequoia Capital even penned an apology letter to their investors. And that’s just one example.

Startup valuations are dropping quickly. And PE investors don’t want to catch this falling knife. They don’t want to be scarred further. So they’re not going to be in a rush to buy what Tiger’s selling.

Secondly, you have to remember that PE firms don’t conjure money out of thin air. They have to convince big investors or families with money to trust them in making investment decisions. These investors are called Limited Partners (LPs) in PE lingo. And apparently, large LPs have a trust deficit now. They want to be more involved in the PE firm’s portfolio decision-making, They want to see the due diligence and speak to the startups themselves. They want the veto power on investments. Stuff like that.

And that could prove to be a roadblock for Tiger Global too.

So yeah, secret exposé or not, times are changing and it looks like Tiger Global is losing its fangs.

Until then…

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