market folly

We're going to start a new series here on Market Folly that details the backgrounds of various hedge fund managers in a biography/profile format. And, to kick things off, we figured what better person to start with than Julian Robertson? For those unfamiliar with Robertson, then here's what you need to know: He is the definition of a hedge fund legend. After attending the University of North Carolina, Robertson served as an officer in the US Navy and worked as a stockbroker for Kidder Peabody. He then founded and grew his (now defunct) hedge fund Tiger Management from $8 million at launch to over $22 billion in 1998 at its peak. And, as listed on our Tiger Cub biographies page, Tiger compounded a gross rate of 31.5% between 1980 and 2000. But, after losses of 4% in 1998 and 19% in 1999, Tiger shut down as the dot-com bubble expanded right in front of his eyes. He avoided what he deemed to be 'irrational investing.' The tech bubble would indeed be irrational investing, but his fund wouldn't be around to see it through. A few major bets of his went south (including US Air) and enough was enough.

In terms of his investment style, Robertson takes a macro approach, finds a smart idea, researches it exhaustively, and places a big bet. And, when he feels he is more than correct, he will 'bet the farm.' Since Tiger's closure, Robertson has put up equally impressive performance numbers managing his own money. Back in January of 2008, it was noted by Fortune that Robertson had seen a total return of over 400% in the 8 years gone by since closing his fund. And, he even predicted the financial crisis over two years ago.

Not only has Robertson done well for himself, but he has essentially reinvented Tiger Management in the form of 'Tiger Cubs.' After Tiger Management's dissolution, numerous analysts and right-hand men started their own funds. These funds were nicknamed 'Tiger Cubs' due to their ties to Robertson and his old fund. The principles, research, and investment methodologies instilled by Robertson at Tiger now are carried on (in slightly modified forms) by numerous other hedge funds; many of whom we cover here on Market Folly in our hedge fund portfolio tracking series. Now legends in their own right, well-known Tiger Cub managers include Lee Ainslie of Maverick Capital, Stephen Mandel of Lone Pine Capital, John Griffin of Blue Ridge Capital, and Andreas Halvorsen of Viking Global, amongst many others.

Robertson also gave start-up money to a handful of younger analysts when he unwound his fund. These seeded Tiger Cubs became mentored by Robertson and began their own track records of success. Two of the most well-known funds Robertson initially seeded include Chase Coleman's Tiger Global and Bill Hwang's Tiger Asia. As of the beginning of 2008, Tiger Global's 7 year average return was over 43%. As you can see, Robertson's ways still live on through many other successful funds. In fact, we noted that hedge fund portfolio replicator Alphaclone has even created a Tiger Cub clone portfolio that has beaten the S&P 500 by 15% annualized since 2000 by using a portfolio cloning the positions of all the Tiger Cub hedge funds.

Robertson's success has landed him on Forbes billionaire list and it really should come as no surprise. These days, Robertson is both managing his own money and monitoring his stakes in the various Tiger Cub funds he seeded. He often shares his thoughts and positions with them and vice versa. It is often a round table of ideas in which Robertson has fun becoming re-energized by the youthful players he surrounds himself with. Additionally, Robertson is an active philanthropist and serves on numerous boards nowadays.

In terms of his recent action, we posted in February that he is extremely bearish on both US and world markets. He likens our situation to that of Japan in 1989 but thinks we are worse off. As we've also noted numerous times in the past, Robertson is fond of the payment processing duopoly of Mastercard (MA) and Visa (V), as they bear no credit risk. When we saw Robertson's portfolio, we also noticed that he held various tech giants such as Apple (AAPL) and Microsoft (MSFT). Julian was not alone in his fondness for Microsoft, as his former right hand man John Griffin of Blue Ridge Capital also has a very large MSFT stake. You can see Julian's thoughts on his positions in his video interview with Bloomberg.

Taken from his very recent May/June 2009 interview with Value Investor Insight, Julian also has revealed some of his other portfolio moves by saying, "We own an Indian Zinc mining company called Hindustan Zinc (HZ:IN), which is probably selling for 4-5x earnings. Zinc is an important component in a wide variety of alloys, and has recently been selling for below its cash cost of production. You almost know that isn't going to last. Zinc would also seem to me to be a very good inflation hedge. I love energy stocks. Without making any prognostication on oil prices, we think based just on cash flow that oil stocks are very attractive, and of course will be much more so if oil prices return to anywhere near where they were last summer. Some energy stocks we own are Occidental Petroleum, Talisman Energy, Ultra Petroleum, and TriStar Oil & Gas. I really like some of the Canadian oil-sands plays, because there's probably more leverage to the price of oil there than anywhere else ... Equities are certainly better than cash. In particular, I'd expect the best things to buy to be natural resources stocks." So, there you have it. Robertson definitely sees natural resources and energy plays as a nice investment going forward.

And, most notably, Robertson has been buying puts on longer-term treasuries. He thinks rates could hit 7% easily and could go as high as 18%. He's talked about this play in numerous forms, as he also recommended playing a steepener swap at a Tiger Cub hedge fund panel. This morning, we've just written an article that elaborates on this thesis in detail. You can read about Julian Robertson's steepener play here. We'd highly recommend it, as this is shaping up to be one of Julian's "bet the farm" plays.

Simply put, Julian Robertson is a hedge fund legend. He's generated ridiculously solid returns, he's carried on his legend in the form of the Tiger Cubs, and most importantly, he predicted the financial crisis 2.5 years ago. If he's not worth listening to, then we don't know who is. For more information on Julian, check out Daniel Strackman's book entitled, Julian Robertson: A Tiger in the Land Of Bulls And Bears.