Redemption Rumors: Another Bustle in Julian Robertson's Hedgerow

But don't be alarmed now for Tiger, whose existence isn't 'imperiled,' one manager says.
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The rumor mill continued to churn today, with market players speculating Julian Robertson's

Tiger Management

is facing up to $6 billion in redemptions. Some credit-market players suggested yesterday's shenanigans in the swap market were the result of the fund having to raise cash in a hurry. Separate rumors of a staff exodus at the macro-style hedge fund were also circulating.

A $6 billion redemption would cut Tiger's asset base off at the knees. The New York-based hedge fund has assets totaling anywhere from $10 billion to $12 billion, according to Bruce Ruehl with

Tremont Advisors

, a fund of funds in Rye, N.Y., and an investor in Tiger. However, a large portion of the hedge fund's capital is subject to lock-up agreements, Ruehl said, suggesting a redemption of that size is highly unlikely, if not impossible.

As for the issue of Tiger's staff, employees are "typically given two-year contracts when they start at $1.5 million a year," according to one hedge fund manager who requested anonymity. "After two years they are paid based on performance through a pool, which vests over five years. What I heard was, in light of the fund's recent performance, employees up to that first two-year mark are bolting."

Robertson has done some sort of flip-flop on divvying up money to managers, but there is no mass staff exodus, according to an investor.

Alone and an Easy Target

Because of its size, Tiger is easy prey for the rumor mill, several hedge fund traders said as they dismissed today's talk. Robertson reportedly called the redemption rumors "obscene," according to the aforementioned hedge fund manager, citing contacts at Tiger.

However, there are legitimate concerns. Despite what has been a legendary

track record, Robertson has had a tougher go of it of late. Since the start of July 1998, Tiger is down 40%, according to Tremont estimates.

"They haven't mounted much of a comeback over that time," Ruehl said. "But this is a rough year for macro funds, a unique year, even though the yen-dollar trade came back. It likely is not as big a percentage of every macro hedge fund's portfolio. And in a month like July, some of Tiger's equity positions went against them," including

US Airways

(U) - Get Report

and

Waste Management

(WMI)

.

The hedge fund source agreed that $6 billion in redemptions was hard to fathom, "but that doesn't mean they're not in a bunch of bad trades."

The source noted Robertson "talked up" his US Airways earlier in the week. "All of a sudden,

now

the airline company has to enhance shareholder value. Why? Because

he's losing on all his other trades."

In addition to Waste Management and US Airways, the source said Tiger's performance has also been battered by big holdings in

Countrywide Credit

(CCR) - Get Report

,

Providian

(PVN)

and

Capital One Financial

(COF) - Get Report

. Each is down considerably from its 52-week high. (See chart.)

Paper Tiger
Key Tiger holdings show a declining trend

Source: Big Charts

Additionally, an individual investor in Tiger said he'd received word from the firm that Tiger was closing to new investors -- i.e., that the hedge fund did not accept any new money in July and won't do so in August either. "The idea, I guess, goes something like this: They don't want to disappoint people who might put their money in this year," said the investor, who asked not to be identified.

Nevertheless, "this does not imperil the survival of Tiger," Ruehl said.

Meanwhile, another hedge fund manager said Tiger's woes -- rumored or actual -- portend poorly for the broader market.

"Tiger's been having trouble with both investors and staff for a while now, so this is nothing new," said Aron Thompson, president of

Infinity Investments

near Seattle. "However, what may have happened is that things got worse for him with the nosedive in markets. But this isn't simply a Tiger problem: It will be a hedge fund industry problem, and probably sooner rather than later. They aren't making enough money (or in some cases, are losing too much money) to justify that they exist. When you take out 1% to 2% per annum for management and 20% of profits, you'd better be good -- you'd better be better than good."

Thompson further speculated that hedge funds may "deflate" before the market does. But lately, it's looked like a classic chicken-and-egg conundrum.

A Tiger spokesman was not immediately available to comment.