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JPMorgan Packed Its Wealthy Clients Into Tiger Global Fund for Private Bets

·6-min read

(Bloomberg) -- As wealthy investors clamored to get into Tiger Global Management’s ever-soaring bets on startups, JPMorgan Chase & Co.’s ability to funnel cash to the high-flying money manager became the envy of rivals.

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Now, with Tiger’s public investments cratering and all eyes on what happens to its stakes in private companies, the bank’s prestigious offering to clients is cutting the other way.

JPMorgan raced past the likes of Morgan Stanley and Goldman Sachs Group Inc. to source more capital for Chase Coleman’s Tiger empire just as it neared its zenith. That made JPMorgan’s customers, collectively, one of the top sources of cash for Tiger’s newest and largest-ever venture-capital fund, contributing $1.9 billion to the vehicle known as PIP 15 before fundraising closed in March. Months before that, the bank tapped a similar client pool to amass $2.9 billion for a new venture fund for Philippe Laffont’s Coatue Management.

But Tiger has been dramatically humbled this year, becoming the talk of Wall Street. Its main hedge fund tumbled 52% through May, hurt mainly by declines in publicly traded stocks. While the firm has kept PIP 15’s valuations relatively steady so far, the market for venture-capital investments -- that fund’s domain -- is cooling.

“Valuations in public markets often inform valuation of private markets,” said Nancy Vailakis, a principal with Ancram IRBD, which helps private funds raise money. A bet on private assets “feels less assured than before.”

Venture-capital firms pivoted from the deepest pockets to mere millionaires to perpetuate their voracious fundraisings, with each new vehicle usually larger than the one before. Many institutional clients are likely at or above their limits on private investments, pressuring money managers such as Tiger to work more closely with banks and their wealthy clients to continue the spree of bets. Tiger was the world’s most-active venture investor last year, according to CB Insights.

Representatives for Tiger and Coatue declined to comment.

“We are proud of our solutions offering and have nearly two centuries worth of experience helping to add value in client portfolios over the long term,” said JPMorgan spokesperson Darin Oduyoye.

Tiger shares the valuations for its PIP funds with investors on a quarterly basis, according to a person with knowledge of the matter. In the first quarter, the firm marked down the PIP funds by about 9% in aggregate, and more cuts are expected by the end of this month. PIP 15 had a double-digit net internal rate of return since inception, the person said.

Tiger and Coatue are among a cadre of Tiger Cubs -- so called because their founders once worked for Julian Robertson’s Tiger Management -- that invest in publicly traded stocks and closely held companies. As the private ventures achieved ever-increasing valuations over the past several years, Tiger Global posted soaring returns. Other fund managers have since been inspired to adopt a similar mix of stock trading and VC investing.

Tiger amassed $8.8 billion for PIP 15 by the end of October, investors told Bloomberg at the time. By that point, it had already called about a third of the cash and was deploying it. The new fund went on to tap additional money, and the fundraising closed in the first quarter with a total of $12.7 billion.

It’s part of a broader trend.

Goldman Sachs and Morgan Stanley also have put their private-banking arms to work on such efforts. In the elite money-management industry, these fundraisings are sometimes referred to as going retail.

One prospective investor, who asked not to be identified, described the shift this way: While it used to be almost impossible to get into Tiger funds, he has received calls from multiple banks in the past year inviting him to invest.

There’s room to go even further.

“There is an expanded interest among private equity funds in chasing high-net-worth retail money, and they can expand their offering on these retail platforms in a bigger way,” Vailakis said. One banker offered her access to a portfolio of eight private equity funds, but she refused because it would mean paying a double layer of fees at a moment when returns looked less certain.

JPMorgan’s Conduits

JPMorgan took on multiple roles for PIP 15, sourcing both investor capital and debt financing.

For Tiger, JPMorgan Private Investments set up onshore and offshore conduits to raise money from the bank’s wealth-management clients and employees, regulatory filings show. The channels, allowing a much lower minimum investment than the venture fund itself, began soliciting capital in October.

While Tiger’s main hedge fund has lost more than half of its value this year, PIP 15 isn’t sharing in that misery. It deployed billions before the downturn, but it also had billions left, potentially positioning the firm to scoop up additional holdings at better prices. The shift in focus to early-stage venture stakes could, theoretically, spare PIP 15’s backers from the worst pain because the assets hadn’t yet soared in value.

The ultimate outcome may not be evident for some time because it often takes several months for private markets to settle on new valuations after a significant downturn. Investors at a number of funds, such as Dan Sundheim’s D1 Capital Partners, are waiting to see what happens with their portfolios when marks are shared after the end of this month.

Coatue began marketing its Growth Fund V in early 2021, filings show. Last June, JPMorgan began offering a conduit to its wealth-management clients to pool cash and invest in that vehicle. That channel alone raised almost $2.9 billion by the end of September, according to regulatory documents.

That contribution is big enough to run a full-fledged growth fund. It can be harder to put bigger pools of capital to effective use when investing in companies not yet mature enough to be public.

In April, Coatue prevented some investors from withdrawing all of their cash in its main hedge fund, which bets on public and private assets. The policy puts hard-to-sell stakes into so-called side pockets that can be liquidated later.

The fundraising shift to millionaires is an experiment that will play out in coming years. Venture-capital firms used to focus on tapping investors able to write the biggest checks -- such as endowments, foundations, pensions, sovereign-wealth funds and the ultra-wealthy.

But after years of watching those firms post robust returns, individual investors were eager to get in, and banks, hungry for more ways to generate fees, helped them do it. As the valuations of private companies neared record highs, those investors were let in last.

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