Many crossover firms that went very early stage during ZIRP with tons of capital got burned, Tiger the nost notably.
Crossover investors: TCV, Tiger, Altimeter, Lone Pine, Coatue, Dragoneer, Durable, Alkeon (am I missing any big names?)
What crossover firms look the best at this point? Who was able to minimize their losses in 2022 and now has good returns, when you look at the last 4+ years?
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Literally none of them.
Bruh don’t work for these funds they suck what are you doing
Why so? I understand that many of these firms made very bad strategic decisions and basically burned LP money, but the general concept seems to make a lot of sense: Late stage technology venture / growth equity fund, then leverage the information advantage of your private portfolio to make public equity L/S trades.
Hahaha wake up, son. There's no information edge. It's all a levered beta play on ZIRP.
They do try to fool LPs with that pitch, but for you to also buy it.. you are not in on the joke.
Minimal experience here, but I will share my perspective from afar. It seems like there is some debate still as to whether there is a definable value add, and/or anyone can do it consistently well over a long time period, whilst being a crossover investor. I think the pitch sort of sounded like this: we are already identifying paradigm changes + disruptive technologies across the public markets (and winning in doing so), and so there are strong synergies in also focusing on VC, as it reinforces your knowledge base + network + understanding of the market when it comes to publics, it puts you ahead of the curve in identifying emerging winners before they go public, and you will be able to identify the same winners in the private space. So then you benefit through the whole lifecycle of a business. Coatue kinda pitched that + their "proprietary" data science team (no idea how strong that team was/is). Then Tiger sort of believed if you just throw enough money at the dart board in the sector you think will win/grow, you'll win enough, so moving fast and being a non-active player was an advantage. So probably a combination of these philosophies across the board for everyone.
Turns out market cycles and rates and hype were bigger drivers for some elements here though (definitely not saying all elements). It depends on your view of what is the competitive differentiation and moat in the processes of these firms. Clearly many of these players did a somewhat average to poor job in the VC/GE space, and its unclear how much of their activity there helped in driving returns in the publics outside of just other forces. I wouldn't write it off 100p, but I think as these players attempt to redefine their process and value proposition on the publics side, the crossover side is in a bit of limbo. There is a reason why there was specialization in the first place, and with how difficult it is to provide a product that LPs will be happy with on the publics side, I think it is hard to also dabble elsewhere (even if you are supposedly drawing synergies from activities there). Now you could argue that you have one team specialize publics, one team specialize VC/GE, and then they can share notes? How much efficiencies do you truly draw from that? Coatue given their size probably seems best positioned here to continue their efforts with this model, but when it comes to the relatively smaller firms, with maybe 15 IPs doing everything, I think it becomes much more difficult to see.
It sounds like a fun seat to be in for sure, but I have to wonder how much bandwidth one has to effectively manage these processes given the markets today, and if the value proposition is actually more definable and measurable, or more vodoo magic steeped in exclusivity, pedigree, and large AUM in a mania up-cycle.
I think the informational edge is real but it needs to be coupled with minimal diversification. Marc Andreessen said in an interview in 2018 that so many of their startups buying Nvidia GPUs and that the a16z partners talked about what they would do if they were to raise a hedge fund. Marc said that if they had a hedge fund, they would put 100% of it into Nvidia (up 1,350% since Jan 2019).
I think that’s a way big returns are made. Investing in public companies will teach you how to price companies and understand markets. Investing in late stage venture will you give you a glimpse into the next wave of competition.
Another example could be Databricks and Snowflake. Investing in these very early would be a great investment while also giving you the conviction to make larger bets on public cloud computing companies like Amazon, Microsoft and Google. Snowflake is down 17% since IPO, but the 2018 Series F investors would be up 10x if they held. Being an investor in Databricks would be very valuable, especially since they can likely disclose things to you more frequently and in more detail than in the public markets.
What you are describing is counter to the value proposition of a hedge fund. Successful funds achieve risk-adjusted return through diversification/risk management and tight nets.
Even for concentrated crossover funds, there is at least some expectation to outperform in down cycles. These funds have liquid public vehicles that are marked to market every day. Large drawdowns could result in aggressive investor redemptions, a feature - not a bug - that distinguishes hedge funds from private market vehicles. It's simply a different mandate that most of the time doesn't incentivize large concentration risk because once you underperform, you risk losing your capital and getting shut down.
“Marc said that if they had a hedge fund, they would put 100% of it into Nvidia (up 1,350% since Jan 2019)”
One stock yolo, “hedge fund,” definitely things someone of Marc’s nuance would equate.
d1 is another big name but their private investments have been going terribly
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