Wednesday, October 24, 2007

Who Cares What Julian Roberston Thinks Anymore?

This post really covers two topics. The first involves CNBC's repositioning of late, in order to prepare for competition from the new Fox Business Channel. As a case in point of that topic, I find myself commenting on the reappearance of failed hedge fund manager Julian Robertson.

Julian Robertson was interviewed by Erin Burnett on CNBC last week. As part of the network's attempt to push its ability to feature long interviews with financial personae, present or long past, they trotted out segments of a recent interview with the one-time manager of the Tiger Funds.

Really, who cares? Didn't Robertson blow up his hedge funds up ten years ago? Failed, closed the funds and got out of the business?

Is CNBC so desperate for guests that they need to resurrect this guy? Who's next, Michael Steinhardt, John Meriwether and Bob Vesco? Well, I guess Steinhardt's busy with his new ETF business, so he's perhaps less available, if more current.

When Googling Robertson, I initially found this piece in US News&World Report three years ago this month,

"Julian Robertson, the legendary hedge-fund manager whose steadfast refusal to be a part of the Internet stock craze essentially ended his investing career in 2000, has run into a new obstacle, this time on the other side of the globe....Since his Tiger Management fund group returned its money to investors--it still exists to manage Robertson's $850 million fortune and advise other fund managers, among other things--"

What's curious is that the USN&WR omits any mention of Robertson's egregious losses in the last year of his funds. More on that later in this post.

This entry from "Investopedia" alleges,

"Year after year of brilliant returns turned a reported $8 million investment in 1980 into $7.2 billion in 1996. During the later part of this period, Robertson was the reigning titan of the world's hedge funds. At his peak, no one could best him for sheer stock-picking acumen. Investors, at a required minimum initial investment of $5 million, flocked into his six hedge funds.

In the late 1990s, Robertson agonized over the tech-stock craze and, while avoiding what he considered to be "irrational" investing, the TMG funds missed out on any participation on the big gains of the sector. The gradual demise of Tiger from 1998 to 2000, when all its funds were closed, was reflected in the plunge in assets under management from a high of $23 billion to a closing value of $6 billion. Poor stock picking and large, misplaced bets on risky market trades are usually cited as the cause of Robertson's downfall. However, it is felt by many objective observers that high-level executive defections from TMG's management, as well as Robertson's autocratic managerial style and notorious temper, eventually took their toll on the firm's performance.

And this, from a CNBC interview in 2005,

"I am more disturbed than I have ever been in my investment life."

He believes the U.S. consumer is all but exhausted (see yesterday's comments on the same subject) , that the effort will be made to "inflate our way out."
He notes a soft landing is possible, but ala Japan, it could involve years of flat or no growth.

Of course, there was no catastrophic recession in 2005...or 2006....or 2007.......


Another Google search result was this AlMartinraw.com column, from August of 2005. It contends, in part,

"Julian Robertson is a loser. But he doesn’t lose his own money. He only loses Other People’s Money (OPM). When Julian Robertson was forced to shut down his Tiger Management Group of 6 hedge funds in 2000, according to the Sunday Times of London (April 2, 2000), he readily admitted, “We are in a market I really don’t understand.” Robertson’s record of failure is a testament to his ineptitude.

In an interview with Institutional Investor, International Edition (December 2002), he was asked, “So who do you blame for the stock market bubble?” Robertson answered --“Mr. Greenspan. He and all the other politicians and Fed chiefs. Their objective was, ‘Let’s not let anything bad happen on my watch.’ They were not letting normal business corrections happen, setting us up for a doozy.”

Then when asked, ‘What about the situation today?’ Robertson answered, “This can’t go on forever. The little guy is doing it, but now he can’t spend anymore. He’s tapped out. So the economy will collapse like a house of cards.’”

“Collapse like a house of cards”? It should be noted that in the interim, the Dow has rallied some 3,000 points while “the little guy,” as he puts it, keeps increasing debt levels and refinancing his house to maintain consumer spending. And, sad but true, once again, Mr. Robertson has missed a dynamic bull market!

When asked if America’s economy is going to be as bad as Japan’s, Robertson answered, “We Americans are set up for a very tough time for a very long period of time… The economy will fail ‘when the little guy can’t make the monthly mortgage payment on his mortgage.’” Robertson reiterated this belief in his recent interview on CNBC that he was worried about what was going to happen when Americans started losing their homes.

When Robertson was asked, “How do we get out of this mess?” He answered, “I don’t know how to get out of it. It could be a rough 10-year period for us. I see no way of getting out of it.” That interview was conducted in 2002.

For the record, Julian Robertson was the fund manager of Tiger Management Group, which had $23 billion at its peak and $6 billion when it was rolled up. Robertson has admitted that he doesn’t understand the markets and thus missed one of the most dynamic bull periods in the market (1998-2000) and then again missed a second bull market move from 2002-present. Nevertheless he now wishes to form yet another hedge fund.


Continuing with Julian Robertson’s record of failure, the Financial Times of London (November 6, 2004) writes that his investment management record deteriorated “when Russia defaulted on its debts in 1998. By this stage, he was looking in some very strange places for advice.” According to Strachman, author of A Tiger in the Land of Bulls and Bears, “Robertson had looked to guidance from Margaret Thatcher and Bob Dole. Both had asserted a default was impossible.”

Then Robertson’s desperation led him to try to recoup losses by investing in dangerously unstable but extremely high-yielding debt. It was essentially a gamble. And his investors lost.

“Robertson was remembered less kindly for losing $200 million in 1996 with a bet on U.S. Treasuries that went wrong… Investors withdrew money from his funds he wound down in 2000 when it had fallen to $6 billion. He has been since running his own foundation. His net worth has been estimated at more than $400 million.”

Business Week (April 17, 2000, called the collapse of Robertson’s Tiger fund “the biggest hedge-fund collapse in history.” And it didn’t get a government/ central bank bailout like the geniuses at Long Term Capital either.

How Robertson dealt with it, according to Business Week, was however a “stroke of genius. And the press largely swallowed it whole…He released a 2-page letter to his investors portraying himself as a champion of rock-solid value investing. This sound philosophy was made impossible by ‘an irrational market’ that he likened to a Ponzi scheme destined for collapse.”

Robertson should have known by then the very first rule of investing: Never fight the trend. Instead he calls the entire market a “Ponzi scheme.” "

Why would anyone now care about his views now on economics, inflation, etc. ?

For what it's worth, I can attest to the version of Robertson's fund collapses as being attributed to excessively-risky bets.

Sometime during 1999-2000, I accompanied my then-partners in a hedge fund, for which I sub-advised, on a trip to Santa Barbara, California. At a dinner party there, I spoke with a successful, retired investor who sat on several institutional investment committees, including that of a prominent California university.

That university had invested in one of Robertson's Tiger funds. As such, it merited a personal visit by him to explain the fund's demise. Thus, this anecdote comes directly from someone in the room as Robertson described his fund's losses.

Essentially, according to my conversation partner, Robertson let several traders in one of his Asian locations get heavily invested in hedge trades which Robertson confessed were more complex than he could understand. They resulted in serious losses- the losses which ultimately triggered his funds' closings. I distinctly recall this man's shock in learning, directly from Robertson, that he had essentially abandoned risk management, or even making sure he at least understood the ramifications of the hedged positions being put on by his traders.

With this as a background, I find it bordering on reckless for CNBC to be treating Julian Robertson as some sort of font of business and investing wisdom for the ages.

There are a host of ways in which the network could position itself to compete with the new Fox Business Channel. It's sad that their chosen method is to go for celebrity name interviews, rather than solid, reasoned analysis of business news.

More on this in a subsequent post.

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