Eye of the Tiger Turns to Robertson's Succession Plan

A glittering track record and sterling reputation have sheltered hedge fund manager Julian Robertson from off-base market rumors and the occasional performance-based worry. But the Tiger Management head is finding even he isn't immune to concerns about who'll take the helm when he departs.

Last Friday's rumor that the Federal Reserve was organizing an emergency bailout of Tiger sent the Dow tumbling more 1%. The rumor, which turned out to be false, illustrated once more that the mere mention of Tiger's name can move markets.

But it also exposed a thorny question at Tiger: Who would steer the massive hedge fund were Robertson to step down? Though Tiger says it has "an enormous depth of talent" under Robertson, the succession question has weighed heavily enough to prompt changes in how Tiger investors' money is being run.

Still vigorous at 66, Robertson likely has years left in his career. He is still considered an eminence grise on Wall Street: After all, Tiger has averaged an annual return of 29% since Robertson started with a mere $8 million in 1980. Along with George Soros, Robertson is among a few "global-macro" hedge fund managers whose investments range from foreign currencies to U.S. equities.

But Robertson's wife is being treated for cancer, according to one person close to Tiger, and potential successors are walking out the door. In addition, shaky global markets and redemptions by investors over the past year have slashed Tiger's assets to roughly $13 billion, from a peak of $20 billion in 1998. Bets on the Japanese yen cost Tiger $2 billion one day last fall and erased Robertson's double-digit gains in 1998, leaving Tiger with a gain of just 1% for the year. So far in 1999, Tiger is down 8%. May, with a gain of 0.8%, was the first "up" month for Tiger this year, says a Tiger spokesman.

While Soros often defers the final investment call at his shop, delegating to top lieutenant Stanley Druckenmiller and younger managers, Robertson still pulls the trigger most of the time. "Robertson is the franchise," says a former broker at Tiger. "He's always called the shots."

"The fund's recent performance notwithstanding, everything's fine with Julian at Tiger," the Tiger spokesman says. "He's still in the saddle. But the succession question is a legitimate one." Robertson declined requests for an interview.

Robertson may finally be taking a cue from the Soros shop. He's changed the way some of the money is being run at Tiger, giving some new top analysts the chance to run $100 million or so and see how their picks work out; Robertson doesn't have the final say in these subfunds.

Not only does this establish a track record for the analysts-cum-managers, but it also sets up a competitive climate at Tiger that could prompt a contest for the successor's spot. "Potentially, Tiger could even market them as spinoff funds," says a former Tiger employee.

In many ways, Robertson's succession dilemma typifies that of brand-name hedge fund managers. "When you invest in a hedge fund, frequently you're buying into the person at the top," says a Westchester, N.Y.-based headhunter for hedge funds.

"How much of what we have is because of the cult of personality, because of me? I suspect quite a bit," says Marty Whitman, 74, a salty Wall Street veteran and a founder of Third Avenue Partners, a Manhattan investment firm. "But we have some very worthy successors. Suppose I retire, and three-fourths of our assets walk out the door? Big deal. We'd be solvent and we'd be OK."

Robertson has had some promising heirs. Some were talented analysts in a position to be groomed by him. Others were simply too smart not to strike out on their own and have emerged as major Street forces in their own right: Larry Bowman of Bowman Capital Management and Lee Ainslie of Maverick Capital rank chief among ex-Tiger hedge fund stars.

Andreas Halvorsen is just the latest potential successor to leave. A Norwegian in his mid-30s, Halvorsen glided out the door earlier this year after making a name for himself as Tiger's director of equities, one of its highest positions. Described by peers as affable, intelligent and a hit with European investors, Halvorsen could easily have been a reassuring successor to Robertson.

Instead, Halvorsen left Tiger and is raising money for his own hedge fund. (He didn't return calls for this story.) One person close to Tiger says Halvorsen and Robertson parted amicably, though Robertson has a famous temper. "No one sees eye-to-eye completely with Robertson," says an investor in Tiger. "He is no walk in the park to work for."

In part, hedge fund economics interferes. "If you're so good that Robertson himself says 'You're next,' why would you stay? You can leave and build your own ship," says the former Tiger employee. As a Tiger alum, a start-up manager could attract "several hundred million dollars, and immediately take home $10 million for themselves" under the typical fee structure.

Buyout Options Fizzle

There had been chatter that Tiger would sell a piece of the firm to a minority investor to keep the firm alive -- when and if Robertson leaves. Robertson's favorite, Morgan Stanley Dean Witter (MWD Quote), seemed an ideal partner until last fall's Long Term Capital Management debacle, which made even the boldest Wall Street banks fear shareholder backlash and hedge fund lending risk showing up on their books.

"Given a choice of Morgan Stanley or Cindy Crawford, most men would choose Cindy," says the former broker of Tiger's. "Not Julian. To him, the firm walks on water."

As Tiger's prime broker, Morgan Stanley has served Robertson in other ways. Over the past year, he harvested investment brains like Phil Duff, Morgan's former CFO and financial architect of its merger with Dean Witter, and Paul Brooke, Morgan Stanley's star healthcare analyst. Morgan Stanley declined to comment on whether it had been approached as a possible minority investor in Tiger, citing client confidentiality.

With the latest round of hires, Tiger may be trying to fight its reputation as a boarding school for young hedge fund managers -- a great place to have been, but not to stay.

It's also telling that Robertson recently has hired a squad of slightly older, veteran analysts who may be less likely to flee after a few years.

Among them are Tom Kurlak, a longtime Merrill Lynch semiconductor analyst who made a controversial bear call on Intel (INTC Quote) before leaving to join Tiger; Patrick Earle, a top-ranked European telecom analyst from what was then known as SBC Warburg and is now Warburg Dillon Read; Tom Brown, the outspoken and controversial bank analyst from Donaldson Lufkin & Jenrette.

But for now, Robertson is still Tiger. So what if he leaves? "I don't see Julian stepping down as a reason Tiger closes," the investor says. But wouldn't investors pull out once he's gone? "We have money in the fund, and that wouldn't be our reaction."