Hedge funds that have focused for years on big tech investments are finding themselves in trouble as the industry stalls. Juliet Chung reports for The Wall Street Journal:
A major bright spot for the hedge-fund industry in recent years has suddenly darkened as stocks of technology and other fast-growing companies sell off, handing out large losses to some big investors.
Hedge funds investing in growth stocks turned in their worst performance in years in 2021, according to portfolio managers and their clients. Many funds were hit by large losses late in the year, with the drubbing continuing into early this week.
Those suffering notable pain include Andreas Halvorsen’s Viking Global Investors LP, whose $22 billion flagship hedge fund, Viking Global Equities, was down 4.5%, in its biggest-ever annual loss. Tiger Global Management lost 7.4% in its hedge fund—which managed about $25 billion at the start of 2021—in its first losing year since 2016.
Meanwhile, Boston-based Whale Rock Capital Management lost 19.2% in its hedge fund in the share class that invests only in public companies, and had additional declines this year part way through last week, according to people briefed on the matter. Palo Alto, Calif.-based Light Street Capital Management shed 26% last year.
“The selloff has been pretty brutal and pretty violent,” said Greg Dowling, investment chief of the Cincinnati-based investment-consulting firm Fund Evaluation Group. He said volatility in the stock market could present opportunities for funds, but predicted more pain ahead in the event of significantly higher interest rates, which “will derail companies where earnings are more of a hope and a dream than a reality.”
The poor performance contributed to an overall lackluster year for hedge funds betting on and against stocks, which gained an average of 11.9% in 2021, according to the industry-research firm HFR. That compares with the S&P 500’s total return of 28.7% and the Nasdaq Composite’s total return of 22.2%. A handful of companies had an outsize influence on the indexes’ performance last year.
The losses are a reversal from the previous several years, when such investors regularly notched some of the biggest gains among hedge funds. Covid-19 supercharged their returns in 2020 by juicing demand for many technology businesses.
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