Technology-focused hedge fund Tiger Global is exploring options to cash in a piece of its more than $40 billion (€36.6 billion) portfolio of privately held companies, according to people familiar with the matter.
The New York-based investment group is working with an adviser to tap the so-called secondary market to help return money to some of its investors, the people said.
Talks are at an early stage and potential buyers have said that any deal would probably be complicated by difficulties valuing Tiger’s private holdings, which include stakes in companies such as payments business Stripe (founded by Irish brothers John and Patrick Collison), US software group Databricks and China’s ByteDance, some of the people said.
Tiger declined to comment.
The decision to try to tap the private equity secondary market to generate cash highlights a growing problem private investment firms are facing: how to return money to their backers. Sources told the Financial Times that other large venture capital firms have also been studying similar sales of parts of their private portfolios.
In February, the Financial Times reported that at the midpoint of 2022, Tiger valued its investments in Stripe at more than $1.5 billion, according to documents that it had seen.
Over the past few years, investors in fast-growing companies such as Tiger have been able to realise gains by taking companies public. However, initial public offerings have slowed over the past 18 months as investors grapple with wider inflationary pressures and stock market volatility.
Globally, the amount of money raised through IPOs in the first quarter of this year fell 61 per cent to $21.5 billion against the same time period last year.
In a recent quarterly letter to investors, Tiger expressed optimism that some of its large private holdings such as Databricks would be able to list when equity markets reopened for public offerings.
“Our largest private holdings are generally capital-efficient or profitable market leaders awaiting an opportune window to complete public listings,” it told clients in a fourth-quarter letter.
The secondary market has become an increasingly popular tool to help firms return cash to their investors while public markets have been shut. It can also enable firms to hold on to private companies they own for longer periods than a typical fund structure usually allows.
Secondary deals have surged in recent years. Deals worth $105 billion were struck last year, nearly five times the value of transactions in the space a decade before, according to a report published by Raymond James.
Founded in 2001 as a long-short hedge fund by Chase Coleman, Tiger expanded aggressively into private markets, particularly in China, in its early years. It eventually backed hundreds of fast-growing start-ups including Alibaba and JD.com, among others.
Over the past decade, the firm’s portfolio of stakes in privately held businesses grew to make up the bulk of its more than $60 billion in assets, the FT reported in February.
Rising inflation and higher interest rates brought the firm’s push into early-stage investing to a juddering halt as shares in high-growth, speculative companies sold off sharply.
This prompted investors in private markets to also write down investments in unlisted technology groups.
In 2022, Tiger’s flagship fund suffered its worst annual loss, losing more than 50 per cent of its value as Tiger marked down its unlisted holdings by nearly 20 per cent. Some of its funds have recorded small gains for unlisted assets this year, however. – Copyright The Financial Times Limited 2023