Describing the technology-driven equity universe as a "Ponzi pyramid destined for collapse," Julian Robertson, the legendary hedge fund manager once known as the Wizard of Wall Street, confirmed yesterday that he is closing up shop.
Saying he no longer understands the markets that made him a billionaire, Mr. Robertson will shutter all six of the funds run by his Tiger Management LLC and return all money to investors.
Tiger has about $6-billion (U.S.) in assets, down from nearly $22-billion just 18 months ago.
Mr. Robertson, 67, made the announcement in a blunt and moving letter to investors that reflected both his enormous pride in his 20-year track record and his utter bewilderment at more recent stock market developments that have made a hash of his long-cherished investment theories.
At the end, the Tiger went out scratching and clawing.
"There is no point in subjecting our investors to risk in a market which I frankly do not understand," he wrote.
"The current technology, Internet and telecom craze, fuelled by the performance desires of investors, money managers and even financial buyers, is unwittingly creating a Ponzi pyramid destined for collapse," Mr. Robertson warned.
The only way to produce a strong performance in the current climate is to buy such highly speculative stocks, he said. "That makes the process self-perpetuating until the pyramid eventually collapses under its own excess."
It was no small irony -- and perhaps no coincidence -- that the stunning exit of one the world's most respected value investors occurred the same day as a meltdown in technology stocks of the kind Mr. Robertson has long expected.
"The value world has suffered long and hard and this may be the capitulation that you need to see before the turning point," said Mary Jane Matts, a vice-president with National City Investment Management Co. in Cleveland.
Mr. Robertson is by far the biggest name in value investing to be undone by the momentum-driven stock market of the past 18 months. But he is by no means the only one.
A handful of other high-profile fund managers who share similar views and strategies have cashed in their chips or been cashiered in recent months.
Others, such as Peter Lynch and Michael Price departed earlier. And although famed investor Warren Buffett is hanging on, his investments have taken a terrible drubbing.
All share Mr. Robertson's belief that the key to success in a rational environment is a "commitment to buying the best stocks and shorting the worst.
"But in an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much."
Tiger's holdings have already been largely liquefied, as several fund watchers had suspected.
About 80 per cent of the assets will be disbursed to investors by May 1. The rest will paid later after the selloff of five stocks. These include Tiger's largest holding -- US Airways Group Inc. -- as well as smaller, but still significant chunks of Normandy Mining Ltd., Australia's big gold producer; Gtech Holdings Corp.; United Asset Management Corp. and Xtra Corp.
About $1.5-billion, mostly Mr. Robertson's own money, will remain at Tiger after the funds are wound down. About half a dozen analysts will remain with him to manage the money. But the rest of the 37 analysts will be gone by the middle of April.
It is a steep fall from grace for a stock-picker once regarded as peerless when it came to bottom-fishing for undervalued stocks and selecting precisely the right time to buy and sell them.
An entire cadre of fund managers dubbed Tiger cubs learned their trade at the master's knee.
"He was not just a legend but defined a whole style of trading that helped build the hedge fund industry," Richard Medley, a former managing director at larger rival Soros Fund Management, told Reuters.
Mr. Robertson, who cut his teeth on Wall Street during a boom period in the 1960s, started his Tiger funds in 1980 with a partner and total capital of $8.8-million, of which about $2-million came from his own pocket.
Year after year, through up and down markets, his investors reaped a compound rate of return, after fees, of 31.7 per cent, the highest in the industry.
Mr. Robertson, like Mr. Soros and other large hedge fund players, began venturing into the world of currencies and commodities, initially with enormous success.
One year he cornered the market on palladium, a metal used in the manufacture of catalytic converters.
But by August, 1998, things were not looking good for Tiger, he said in his letter yesterday.
Since then Tiger investors have withdrawn about $7.7-billion dollars.
"The result of the demise of value investing and investor withdrawals has been financial erosion, stressful to us all," Mr. Robertson said.
"And there is no real indication that a quick end is in sight."
But industry watchers say that many of Mr. Robertson's troubles were of his own making.
A huge bet against the Japanese yen went wrong, costing Tiger at least a billion dollars. And he failed to cash in on the surge enjoyed by many other value investors starting last March and continuing into June when energy stocks, and later other commodities, turned around.
Part of his problem, other fund managers said, is that he had far too much money concentrated in a small handful of stocks, including troubled US Airways, because they looked like such bargains.
Even small upticks in the Old-Economy stocks he favoured prompted a rush to sell by money managers eager to be rid of them.
Mr. Robertson grew up in North Carolina and started his Wall Street career as a broker with now defunct Kidder Peabody & Co., where he spent 20 years refining his old-school investment ideas.
"His legacy will be one of the best money managers who ever lived," said Alex Shogren, president of HedgeFund.net.