Hedge Funds Lose Billions in Another Year of Stock Market Losses

In 2020, Light Street Capital Management, a hedge fund with a heavy focus on technology, posted a banner year on bets including Amazon.com Inc. and Alibaba Group Holding Ltd.

The good times are over. Stock hedge funds are facing losses for the second year in a row, wiping out billions of dollars of wealth for investors.

Light Street, Whale Rock Capital Management, Tiger Global Management and Perceptive Advisors have all seen declines of more than 40% over the last two years, according to sources familiar with the returns. This could be problematic for smaller firms, as investors typically pay lower or no fees on gains until they are made whole.

The recent decline in stock prices has resulted in significant losses for many investors, especially those who were heavily invested in tech or healthcare companies. Companies like Facebook, Tesla, and Amicus Therapeutics have seen their stock prices plummet, causing investors to lose a great deal of money.

As inflation increased late last year, shares in many companies nosedived. However, few investment funds took advantage of the situation by increasing their short bets.

Chase Coleman's Tiger Global hedge fund has seen a sharp decline of 57% over the past two years, wiping out all the gains it made since the end of 2018. The firm manages a total of $58 billion across its hedge and long-only funds, with $15 billion in hedge fund assets and $43 billion in private investments.

Alex Sacerdote's Whale Rock fund has seen a 47% decline over the past two years, leaving him with a portfolio of around $6 billion compared to the $12 billion it was worth at the end of last year.

Glen Kacher's Light Street firm has been hit the hardest, losing almost two-thirds of its value over two years. The firm oversaw about $2 billion as of the end of 2021.

Joe Edelman's Perceptive Advisors, which focuses on the life-sciences industry, saw a sharp decline of about 49% in the same period.

This year, many equity hedge funds have seen accelerating declines, in contrast to the rest of the industry, which has outperformed plunging stock and bond markets.

"If you just looked at the headlines, you might think it was a terrible year for the industry," said Jon Caplis, head of hedge fund research firm PivotalPath. "But our composite index is actually the most stable it's been in years," with very little month-to-month variation compared to the historically large swings in the stock market.

Hedge funds have underperformed the stock market this year, with the average fund falling 1% while the S&P 500 has dropped 14%.

Some large stock funds have seen consecutive annual declines recently. This may be due to a variety of factors, including market conditions or changes in the fund's strategy. Whatever the reason, it's important to keep an eye on your investments and make sure they're still performing in line with your goals.

Returns for 2022 are available through November, with the exception of Lone Pine, which only has returns through July.

Some managers at stock funds that saw deep losses opted to close their doors in 2022.

Gabe Plotkin closed Melvin Capital Management in May after losing almost half of his clients' investments in less than two years. Some people said he didn't try to make back some of their money, even though he collected hefty fees for six years while posting annualized returns of 30%.

This year, online used-car seller Carvana Co. took a particularly brutal toll on the hedge fund industry. A one-time hedge fund darling, Carvana hit a high of $376.83 in August 2021 and now trades for less than $4.

Two firms that invested in Carvana and held on through the third quarter were Clifford Sosin's CAS Investment Partners and Spruce House Investment Management, founded by Ben Stein and Zachary Sternberg. These firms marginally added to their positions during this time.

Spruce House's $550 million in US-traded companies in the third quarter is made up of 24% car retailers, according to its latest regulatory filing.

CAS was one of Carvana's largest shareholders at the end of the third quarter. The investment firm lost 70% of its value this year, largely due to its Carvana investment, which made up a quarter of its portfolio earlier in the year.