Tiger Global, the technology-focused hedge fund, has defended the way it values its $40bn portfolio of privately held “growth” companies amid investor unease over how much such unlisted investments are worth.
In its annual letter to investors, Tiger outlined its methodology for valuing some of its biggest private holdings, including China’s ByteDance, Europe-based payments company Stripe and US software group Databricks.
Tiger’s intervention comes after a number of private companies were forced to raise money at valuations that were well below previous investment rounds, knocking the portfolios of investors with heavy exposure to unlisted technology groups and fuelling fears of more writedowns to come.
For instance, the hedge fund told investors that it valued ByteDance, the parent of popular video sharing app TikTok, based on the profitability of its Chinese operations alone. Some lawmakers are pushing for the app to be banned in the US after the company became entangled in geopolitical tensions between Washington and Beijing.
“[Our] largest private position ByteDance is valued at 10 [times] the forward net profit of its China business alone, excluding cash on its balance sheet,” Tiger wrote in the yearly letter to investors, seen by the Financial Times.
Tiger said it marked Stripe at a lower revenue multiple than Amsterdam-listed fintech rival Adyen, and said it had applied a 20 per cent discount to private market stake sales of Databricks.
“We believe our private portfolio accurately approximates fair value,” said Tiger, which also noted that it had marked down its private portfolio every month of the year to reflect the fact that the companies had underperformed expectations as well as “substantial multiple compression” in the valuations of publicly listed rivals.
“Our largest private holdings are generally capital-efficient or profitable market leaders awaiting an opportune window to complete public listings,” it said.
At the midpoint of 2022, Tiger valued its holding in ByteDance at more than $2.7bn, while its investments in Stripe were valued at more than $1.5bn, according to documents from last year seen by the FT.
Founded in 2001 by Chase Coleman, a protégé of billionaire investor Julian Robertson, Tiger Global started out as a stockpicking hedge fund. It expanded into private company investments under the watch of private equity head Scott Shleifer, who had success making early bets on Chinese technology groups such as Alibaba and JD.com.
Over the past decade, its private portfolio has grown to account for the bulk of Tiger’s more than $60bn in assets. As of early October, those investments were valued at $45bn, according to documents seen by the FT.
Last year, its flagship fund lost more than 50 per cent of its value, its largest annual decline. The “vast majority” of Tiger’s losses occurred in the first five months of the year, before Coleman helped implement large hedges against falling stock markets, stemming losses through year-end, according to the letter.
“[We] underestimated the impact of rising inflation,” wrote Tiger, which admitted it had “overestimated the sustainability of Covid-driven growth tailwinds for software and internet-enabled businesses”.
Tiger halted new investment in Chinese stocks late last year, but signalled it was taking a more positive stance since the start of this year. The hedge fund wrote it was “pleased to see some recent green shoots” after the Chinese government relaxed coronavirus restrictions and became more supportive of its domestic technology companies.
“We are watching for attractive entry points in companies most likely to benefit from that inflection but maintain a high bar for exposure to China,” it wrote.
Meanwhile, Tiger expressed optimism that the valuations of publicly listed technology stocks were close to bottoming out. “[We] believe much of the valuation compression in our focus areas is behind us,” it said. “We have increased positions in ‘wish list’ companies that have reached our target prices.”
Tiger declined to comment.
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