Coatue returns $2bn to investors after tech rout

Coatue Management, the "Tiger cub" hedge fund headed by Philippe Laffont, is returning $2bn of its $7bn flagship fund to investors, after suffering heavy losses in the rout of technology stocks.

The decision comes as tech-focused hedge funds continue to be hit by falling equity prices.

Mr Laffont told investors that Coatue had been thinking about slimming down for the past 18 months, saying it had become too big to find enough opportunities in the sector.

Coatue's flagship fund fell 8.7 per cent last month, more than wiping out its gains for the year.

"Gathering assets is not part of our business plan, and we are conscious that size is the biggest impediment to returns," Mr Laffont wrote, saying that Coatue was making the "tough but fair and necessary decision" to cap the flagship fund at $5bn. Coatue last year raised $1bn for a second fund that would make fewer, more concentrated bets, and has also launched hybrid funds that act more like venture capital firms.

The flagship fund started the year with heavy bets on tech stars such as Tesla Motors, Netflix, Pandora Radio, LinkedIn, Facebook and Amazon, according to its regulatory filings.

Big investors are reassessing risk in a sector where valuations rose sharply last year and Facebook has used its elevated stock price to fund high-profile deals. Recent comments by Janet Yellen, Federal Reserve chairwoman, which pointed to earlier interest rate rises than had been expected, have also provided another catalyst.

Some high-profile tech stocks, including Twitter, are now in bear market territory, having fallen more than 20 per cent from their peak.

Coatue is not alone in suffering sharp losses in March. Rob Citrone's Discovery Capital Management, another of the "Tiger cub" funds - so-called because their founders first worked at Julian Robertson's Tiger Management - was also hit by technology stock investments and plunged into the red for the year.

Discovery has held conference calls with investors to explain the loss-making positions, according to a person familiar with the conversations.

Mr Laffont began trading technology stocks with his brother while living in Spain, before joining Tiger Management in 1996. He founded Coatue in 1999.

The fund, based in New York, takes both long and short positions, but its short positions failed to hedge against the big losses on its long holdings in March. In fact it lost money on both sides of the book.

"This investment approach leaves us exposed when the market pivots from growth to value, high beta to low beta and secular to cyclical," Mr Laffont wrote. "We are not smart enough to know if this rotation is just a pullback or will lead to a deeper and more protracted correction."

The tech sector rout could dent the prospects for initial public offerings of Coatue's private investments, too.

Mr Laffont has a stake in cloud storage firm Box.net, which filed IPO plans last month. He has also invested $50m in Snapchat, the instant messaging app that spurned a $3bn offer from Facebook last year.

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