Tiger Global, a leading technology-focused hedge fund with a portfolio worth over $40 billion, is reportedly exploring options to sell off a portion of its privately held companies in a bid to return cash to some of its investors.
Sources indicate that Tiger Global is collaborating with an advisor to explore options in the secondary market.
However, the sale may be challenging because of the complexity involved in determining the value of the fund’s privately held assets, which consist of shares in companies such as Stripe, Databricks, and ByteDance.
Private investment firms are facing a problem of how to return money to their investors, and this issue is becoming more significant, as highlighted by recent developments.
In the past, investors in rapidly growing companies, including Tiger, could achieve profits by taking these companies public. Due to market instability and inflationary pressures, there has been a decline in the number of initial public offerings (IPOs) over the past 18 months.
For instance, the amount of money raised globally through IPOs fell by 61% in the first quarter of this year compared to the same period last year.
In this context, private investment firms are increasingly using the secondary market as an alternative means to return cash to their investors, enabling them to hold onto their privately owned companies for more extended periods than a standard fund structure typically allows.
Tiger Global’s Move to Sell Stakes in Private Companies
However, potential buyers have warned that any deal could be complicated by the difficulty in valuing private holdings, leading some to question whether this is a viable option for Tiger Global.
It is worth noting that Tiger Global is not alone in exploring secondary sales of its private portfolio. Other large venture capital firms are also studying similar sales.
This trend highlights the challenge that private investment firms face in returning money to their backers, given the current slowdown in IPOs.
The lack of IPOs can put pressure on investment firms to provide liquidity for several reasons, including providing distributions to clients, funding add-on investments to existing portfolio companies, or ditching companies they do not believe will bounce back fast enough.
Tiger Global shared its positive outlook in a recent letter to investors, stating that some of its major privately held assets, including Databricks, could go public once the equity markets were open again for public offerings.
The hedge fund stated that its significant privately held assets were mostly market leaders that were profitable and efficient in terms of capital usage. These companies were waiting for the right time to go public, and the fund was holding onto them until an ideal opportunity arose.
This optimism could be seen as justified given that companies such as Coinbase and DoorDash have gone public recently with strong valuations.
However, this is a delicate balance, as private investment firms do not want to wait too long to take companies public, which could lead to a decline in valuations.
According to a report by Raymond James, the value of deals in a particular industry increased to $105bn last year, which is almost five times more than the value of transactions a decade ago.
Tiger, a hedge fund founded by Chase Coleman in 2001, rapidly expanded into private markets, particularly in China, and invested in numerous fast-growing startups, including Alibaba and JD.com.
Over time, the fund’s portfolio of stakes in privately held businesses grew and now accounts for most of its more than $60bn in assets.
However, Tiger’s early-stage investing was negatively affected by rising inflation and higher interest rates, which led to a significant sell-off of shares in high-growth, speculative companies.
In 2022, Tiger’s flagship fund experienced a significant annual loss of over 50%, with the firm marking down its unlisted holdings by nearly 20%. While some of its funds have made minor gains for unlisted assets this year, the firm’s early-stage investing has come to a halt.