Published in: 2004
Throughout most of the 1960s and the 1970s, the Jones partnership and a handful of others dominated the hedge fund industry. As Alfred Jones slowed down in the late 1970s, three wise men took the torch: George Soros, Michael Steinhardt, and Julian Robertson. This is the story of Julian Robertson and Tiger Management. By the time Roberson had decided to call it quits, the Tiger organization had grown to more than 2,500 times its original size 18 years earlier. Its assets had grown from $8.8 million to almost $25 billion, or 259 000%. The firm’s compound rate of return to partners during its existance, net of all fees, was 31.7%.
BACKGROUND. Julian Robertson was born in 1932 in Salisbury, North Carolina. In 1955, when he was 23, he entered the Navy as an ensign through the Reserve Officers Training Corps and served on a munitions ship. In 1957 he started his career on Wall Street as a sales trainee at Kidder Peabody & Co and spent 22 years at the firm. When colleagues had a little extra money they would ask Robertson to manage it for them. He earned a reputation as someone who could gather information, process it, and figure out ways to make use for his advantage to make money.
LAUNCHING THE HEDGE FUND. Robertson and his then partner Thorpe McKinsey launched Tiger in May 1980 with $8.8 million under management (McKinsey left Tiger in 1980 for personal and professional reasons). Robertson liked the idea of being compensated based on performance. His strategy was built from value investing and Benjamin Graham and David Dodd.
NETWORK OF INFORMATION. Over the years, Robertson built a Rolodex of thousands of people he had met on his travels around the globe. Although processing numbers is clearly a talent, his ability to gather and process information about a company outside of its financial statements is also uncanny.
THE KEY BEHIND ALL INVESTMENTS WAS THE STORY. If the story made sense, then the investment made sense. If there was no story or it was not easily understood, then it had no place in the portfolio. When the story changed, the investment had to change as well. If the story remained the same, the position should get bigger. You also need to have conviction when making investment decisions. Simply put – you must be willing to go for it. If you don’t believe in it or don’t have conviction in the position, you need to forget it and move on.
LESSONS FROM 1987. When it comes to managing money, the hardest part is not actually managing the money: the hardest part is raising the money to be managed. 35% of the key to any successful money management business sustained solid performance over a significant period. The other 65% is client relationship management. In the wake of serious disruption in the fund’s performance numbers, it is very important that the assets don’t walk out the door.
LONG/SHORT AND GLOBAL MACRO. Tiger had mastered the long/short game and was in the 1980s looking for new, bigger, and more liquid markets to enter. The answer was global macro. Robertson liked the idea of being a global macro trader/manager because it offered him two things: significant returns with the use of less capital, and more respect from his peers because he was trading in the same markets as George Soros.
RIGOROUS PROCESS. Once an analyst recommended an investment, Robertson and the rest of the investment team further scrutinized it. Ideas was questioned with rigor and discipline under conditions that could be described as fierce. The investment selection process was a brutal one that relied on incredible amounts of research and conviction, because they knew that idea generation was the firm’s competency.
A TIGER PERSON. A Tiger person had the following characteristics: (1) smart, bright, and quick with functional intelligence, (2) strong sense of ethics, (3) background in sports and interest in physical fitness, (4) interest in charity and public welfare, (5) sense of humor and fun to be around, (6) a good resume. Many stayed at Tiger even under the less-than-optimal conditions because they were making more money than they could anywhere else on the street.
INTERNET FRENZY. Growth stocks may have a year or two when they suffered, but if they were true growth stocks, they would continue to grow over time. This strategy worked well for much of the 1990s, but in 1998 and 1999 it did not. As the bull raged on within the technology bubble, hot money was dumping old-time names like Gillette, Coca-Cola and Cisco. Companies with no earnings were seeing their stock prices triple and quadruple overnight. People were quitting their jobs to become day traders, the folks at CNBC became minor celebrities and a cab driver or hot dog vendor could make a fortune in stocks. The fund was down over 19% in 1999, and money was pouring out of the fund.
CALLING IT QUITS. By March 2000, as the Nasdaq headed for the 5,000 level, Roberson had decided it was better to close the fund than to sell it (for which he had tried). The pain had grown to great, and he was no longer willing to try to navigate a market that he did not understand. The market, and the Nasdaq in particular, fell apart a few weeks and months after he decided to close. The problem was that while Robertson believed in the value philosophy, his investors had given up hope. He knew that the strategy would eventually pay off, but he didn’t know when.
LOST THE HUNGER. One analyst described the early years as “none of us knew what we were doing so we took risks, not because we were gamblers but because we did not know any better. This led us to significant rewards – if I or any of us knew any better we would have been scared out of our minds, but back then it was simply par for the course. By the time I left, the firm was filled with Wall Street lifers who looked at going to Tiger as the last stop of the career. They were not hungry; they were not interested in taking risks”.
THE USE OF LEVERAGE. Through the use of leverage, Tiger was able to commit capital aggressively to the best long and short investment situations. Leverage allowed the firm to increase exposure to the best opportunities available while reducing overall market directional exposure. While the use of leverage contributed significantly to the firm’s success over the years, Roberson’s ability to understand risk was what allowed it to post such significant profits. The team was active in finding company-specific risks because it believed that its ability to analyze those risks was one of the firm’s greatest strengths.
THE TIGER CUBS. There is a group of 30-40 managers that Roberson invests with and counsels and seek counsel from. At one point or another, all have worked with him or for him. They have been dubbed “the Tiger Cubs” by the press. There is another group of managers, the second generation of Tiger Cubs, that work in what used to be Tiger Management offices. Robertson is helping these managers along by providing them with back-office support and other tertiary money management services. He is also working with these managers to develop their organizations. Some hedge fund industry observers estimates that almost all of the 35 to 40 managers who have gone out on their own after leaving Tiger have hit the ball out of the park in terms of assets raised and performance numbers.