Tiger Global, the tech-focused hedge fund, has defended its way of valuing its $40bn portfolio of privately held “growth” companies amid investor unease over the value of its unlisted investments.
In its annual letter to investors, Tiger outlined its methodology for valuing some of its biggest private holdings, including China’s ByteDance, European payments company Stripe and US software group Databricks.
Tiger’s intervention comes after several private companies were forced to raise money at valuations below previous investment rounds, hitting investor portfolios with heavy exposure to unlisted technology groups and fueling fears of more to come.
For example, the hedge fund told investors that the value of ByteDance, the parent of the popular video-sharing app TikTok, is based on profits from its China operations alone. Some lawmakers have pushed for the app to be banned in the US after the company became embroiled in geopolitical tensions between Washington and Beijing.
“[Our] ByteDance’s largest personal position is valued at 10 [times] The net profit advanced by the Chinese business alone, excluding cash on the balance sheet,” wrote Tiger in his annual letter to investors, seen by the Financial Times.
Tiger said it marked Stripe in a lower revenue range than its Amsterdam-listed fintech rival Adyen, and said it had applied a 20 percent discount to private market share sales from Databricks.
“We believe our private portfolio accurately approximates fair value,” said Tiger, who also noted that it has marked down its private portfolio every month of the year to reflect the fact that the company has missed expectations as well as “tremendous compression” in rival valuations. which is publicly registered.
“The largest private holdings are generally capital-efficient or profitable market leaders waiting for the right window to complete a public listing,” he said.
At the midpoint of 2022, Tiger values its stake in ByteDance at more than $2.7bn, while its investment in Stripe is worth more than $1.5bn, according to documents from last year seen by the FT.
Founded in 2001 by Chase Coleman, protégé of billionaire investor Julian Robertson, Tiger Global began as a stockpicking hedge fund. It expanded to private company investment under the watch of private equity head Scott Shleifer, who successfully made early bets on Chinese technology groups such as Alibaba and JD.com.
Over the past decade, Tiger’s private portfolio has grown to more than $60bn in assets. As of early October, the investment was worth $45bn, according to documents seen by the FT.
Last year, the flagship fund lost more than 50 percent of its value, its biggest annual decline. “The bulk” of Tiger’s losses occurred in the first five months of the year, before Coleman helped implement a large hedge against a falling stock market, leading to year-end losses, according to the letter.
“[We] underestimating the impact of rising inflation,” wrote Tiger, who admitted that he “underestimates the sustainability of Covid-driven growth tailwinds for software and internet-enabled businesses”.
Tiger halted new investments in Chinese stocks late last year, but signaled it was taking a more positive stance from the start of this year. The hedge fund wrote it was “happy to see some new green shoots” after the Chinese government eased its coronavirus restrictions and became more supportive of domestic tech companies.
“We are watching an interesting entry point in companies that benefit the most from the inflection but maintain a high bar for China exposure,” it wrote.
Meanwhile, Tiger expressed optimism that valuations of publicly listed tech stocks are nearing completion. “[We] believe there is a lot of price compression in our focus areas,” he said. “We have increased our positions in ‘wish list’ companies that have reached our target price.”
Tiger declined to comment.