Tiger Management Loses Another Star

SAN FRANCISCO -- Tom Brown is leaving Tiger Management, which he joined with much fanfare in May 1998. Brown, who was a financial services analyst at Donaldson Lufkin & Jenrette and an Institutional Investor all-star before he moved over to the macro hedge fund, tendered his resignation Monday and will leave Tiger Friday.

(In the essence of fair play, I should note that Dow Jones reported on Brown's departure Tuesday. However, I first reported on rumors of the same back on Sept. 22.)

Brown intends to create his own firm, Second Curve Capital, which will focus on money management, speaking engagements and online commentary at www.bankstocks.com, a URL Brown has owned for years but has heretofore been restricted from using by various employers.

Joining Brown's new venture will be Steve Gresdo and Sandy Walters, both of whom followed Brown to Tiger from DLJ, and Steve Krug, another former DLJ employee currently working as a consultant.

A desire for independence was the main catalyst for the decision to leave, Brown said, echoing the sentiment of several other former Tiger employees.

"I did not have as much influence as I would have liked," Brown said in an interview today. "It does come down to, I'm not the head coach [at Tiger], I'm the assistant coach."

The man with the headset and whistle at Tiger is, of course, Julian Robertson, the legendary investor whose reluctance (or inability) to give up control has been cited repeatedly by former employees as a reason for the high turnover at the firm in the past year. It's also been raised as a potential factor in Tiger's flagging performance. After falling 3.9% in 1998, the hedge fund was down 22.5% in 1999 through November, according to a source close to the fund who said December saw gains of about 4%. Before redemptions expected to be paid this month, Tiger's assets under management shrunk to just over $8 billion in December from more than $20 billion in 1998, the source said.

When I asked Robertson if control issues are a reason for the recent spate of departures and the firm's performance, he demurred: "I don't know," replied the manager, whose gentlemanly Southern ways belie an intense, hard-driving personality.

"We've had enormous changes in personnel ever since we started [and] probably always will," Robertson said. "A lot of people want to start their own thing, and it's somewhat of a compliment to us that the people we've picked who've left have done so well."

Brown had nothing but laudatory comments about Robertson. But the analyst said his experience at Tiger confirmed a previously held notion that it's almost impossible for one person to stay abreast of all markets and all currencies, "given the traumatic changes taking place around the world in every industry."

It is unclear what impact, if any, Brown's pending departure will have on Tiger. Robertson does not view it as a particularly big setback, and a Tiger spokesman -- who took me to task (pun intended) for that first report on Brown -- does not expect the departure to change Tiger's strategy of bringing in established sell-side analysts.

But clearly Brown is among the more high-profile employees to leave the hedge fund and the first of the "all-star" caliber analysts brought in by Tiger to head for the exits.

None of the other "heavy hitters" -- a group which includes former Merrill Lynch chip analyst Tom Kurlak -- is reportedly leaving the firm, but the exodus among the ranks continues, according to sources close to Tiger.

Employees who have left or are preparing to move on include technology analysts David Selvers and David Golob and health care analyst Art Cohen.

Tiger's receptionist confirmed Selvers has left but was unaware of his new employer. Golob is on vacation. Cohen did not return a phone call seeking comment.

Moving On

Not surprisingly, Brown's new firm will focus on the financial services industry. The analyst-cum-entrepreneur hopes to raise $100 million in the next three months for the money management arm of Second Curve Capital (which sounds an awful lot like a hedge fund, although Brown did not refer to it as such). Regardless, Brown acknowledges raising capital is going to be exceedingly tough given the shellacking the financial services group has been taking.

Amid Tuesday's big overall losses, financials continued a decline that's been ongoing since last July; the Philadelphia Stock Exchange/KBW Bank Index and the American Stock Exchange Broker/Dealer Index each dropped more than 4%.

"Given the way financials are getting hammered, we may start the fund without the full dollar commitments because we see an investment opportunity," Brown said.

The analyst believes 1997 "marked the end of the bull market" for financials and said the sector's "cyclical bear market" won't end until after the next recession. "But that doesn't mean you can't make money being long."

He sees the financials underperforming the S&P 500 in the first part of the year, but expects a "powerful rally within the bear market" this year, driven either by a sense rate hikes thus far have slowed the economy or that a subsequent tightening by the Federal Reserve will accomplish the goal. He thinks they will ultimately outperform the S&P 500 by the end of the year.

If up and running today, Brown's fund would be structured to be net long. The analyst wouldn't get aggressively long "until you saw signs of a change" in the group's trading pattern.

Brown's favorite name is Capital One Financial (COF), which fell 6.2% today and is down 28% from its May 13 high of 60 3/16. He also recommends Providian Financial (PCN), which lost 4.3% today and is down 42.3% from its April 28 closing high of 131 5/8.

Finally, Brown intends to invest up to 20% of the new fund in financial service "vendors" such as S1 (SONE) and BroadVision (BVSN).

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