The New York Times posts a flacktacular Business Day piece on a new hedge fund named Falcon Edge.
This new hedge fund is profile-worthy because it has raised $1.2 billion and because its founder, Richard Gerson, used to work for legendary hedge fund manager Julian Robertson and his Tiger Management firm, which has spawned dozens of so-called “Tiger cub” hedge funds started by alumni. Now the Tiger cubs are having cubs, so Tiger Management is a grandpa hedge fund or something.
Fair enough, although Falcon Edge isn’t the first Tiger cub’s cub.
But this story, which tells us that “Blue Ridge Capital “is named for the mountain range that run through several Eastern states,” calls the new fund “the hedge fund equivalent of a high first-round draft pick,” and reports that the founder “is known for his intense manner and boyish grin,” is lacking the kind of context that matters.
First, your average non-“high net worth” reader doesn’t know whether $1.2 billion is a big deal for a new hedge fund or not. The Times doesn’t tell us, but it’s sizeable. A little context on how it stacks up would have helped us understand why we’re reading this story.
That’s a minor miss. But there’s a big hole in the Times’s puff piece, and it’s about Tiger Management, whose “vaunted” legacy is much of the point of the story.
Here’s how the Times talks about Tiger and Robertson:
In a relatively young industry where stars can quickly fade, Tiger Management — and its myriad affiliates like Falcon Edge — is the closest thing to a hedge fund dynasty. After a brief career in finance, Mr. Robertson started Tiger in 1980 with seed money from friends and family. He regularly racked up double-digit returns by taking big positions in companies with good long-term growth prospects and aggressively betting against those stocks poised to fall…
“We really gravitated to young people, and that was a great deal of our success,” said Mr. Robertson, 80, who often hired people in their 20s. “I was just an old goat with all these young geniuses around.”
Stars can quickly fade all right. Robertson famously sued BusinessWeek for a billion dollars in 1997 over a sharply negative cover story that predicted his “glory days are over.” Less than three years later, his hedge fund company flamed out after a run of losses in a boom market prompted crippling investor withdrawals from Tiger.
The company’s funds had gone from $22 billion in assets to $6 billion in a year and a half after underperforming the bubblicious S&P by forty points in 1999, dropping nineteen percent that year and another 14 percent in the first quarter of 2000 after losing 4 percent in 1998 (Gerson left well before the Tiger downturn). That was pretty hard to do in that bull market, and Robertson shut down his funds.
The Times tells its readers none of that. Instead they’re led to believe the “vaunted” hedge fund is a going concern, despite having closed to outside investors for a decade (it re-opened recently as a so-called fund of funds). The closest the paper gets to acknowledging the failure of Tiger is in its to-be-sure paragraphs near the bottom of the story where it concedes that “Tiger ties do not always guarantee success,” a no-kiddin’ statement that would be even more obvious to readers if the Times had covered the major event in the firm’s history (as a disclosure, The Audit is funded in part by hedge fund Kingsford Capital Management).
Speaking of context, the Times mentions that Gerson’s brother is “the co-founder of the Gerson Lehrman Group, a firm that connects industry specialists with investors.” That’s one way to put it. Here are a couple of other ways, via The Wall Street Journal and Seattle Times. It might have been at least worth noting that the expert-advice industry has been eyed closely by federal investigators in recent years (though no one from Gerson Lehrman has been charged).
This isn’t the first time business journalists have glossed Tiger Management’s history. The Times’s own Paul Krugman wrote this in 2000, shortly after Robertson closed his fund:
But the reporting on Tiger’s demise was surprisingly sympathetic. Some of the stories seemed to cast Mr. Robertson as a victim, the defender of genuine economic values against irrational hype. And that is apparently how he sees himself: he was withdrawing, he said, ”from an irrational market, where earnings and price considerations take a backseat to mouse clicks and momentum”…
I don’t want to say Mr. Robertson never knew what he was doing. In the early days of Tiger, when it was small enough to research and speculate in small companies, the story may have been different. But by the 90’s, the inflow of money from eager investors who thought past success guaranteed future gains made Tiger too big to play that game. Mr. Robertson shifted his focus to ”macro” bets — attempts to forecast the future of whole classes of stocks, even whole economies. And there are no consistently good macroeconomic forecasters — only bad forecasters who get lucky. (That includes me.)’
Gerson left Tiger a couple of years before the bottom fell out there. For all we know, Tiger may have fallen off because all the Tiger cubs left.
In a piece that was already a little too fluffy (one trade site called it “nothing short of a home run for him and his company” and said “Some guys make it look easy, and they tend to have good PR people”), you can’t talk about a major hedge fund’s “double digit returns” and let its founder go on about its success without pointing out its failure.