FALL OF THE WIZARD(Part 2)
``The best thing we can say about the first quarter of 1994 is that it is over.''
- Julian Robertson, in an Apr. 8, 1994, letter to investors
When Gerstenhaber left--taking his key people with him--Robertson became his own chief macro analyst, crossing the globe feverishly in search of macro ideas while he embarked on an intense hunt for a new macro analyst. As always, Robertson was accompanied on these treks by John Griffin, his chief aide. Griffin, who turned 29 in 1993, was one of a handful of key aides on whom Robertson began to rely increasingly--sparking the jealousy of less favored analysts.
But Robertson recognized that he needed another Gerstenhaber. He again reached across the Atlantic for macro brainpower--a Scottish-born global economic strategist at Goldman, Sachs & Co., David Morrison, and Goldman bond market strategist Jeremy Hale, both in London. Morrison was signed on at the beginning of 1994 to head the macro operation. At 41, Morrison was a comparative geriatric by Tiger standards, but as a dedicated auto racer he reflected the jock ethos that was ingrained in the Tiger corporate culture. In the typical Robertson manner, he had scoped out Morrison before hiring him--meeting with him three to four times a year and chatting often by phone.
So they were pals--until he was hired. Almost immediately, as with Gerstenhaber, conflict began. For starters, Morrison was a Londoner, and he wanted to stay there. Robertson wanted him in New York. Morrison prevailed, but the argument was just the first of a series--over far more important things than who would live where.
As the year began, Robertson was bullish on the dollar and bearish on European interest rates. He was long in the Hong Kong, Korean, Swiss, and British stock markets and short in Japan, France, and Germany. Morrison felt quite differently about pretty much everything. ``We didn't expect that Julian would jettison his views in favor of ours,'' says Morrison. And he didn't. ``Julian is strong and expressive,'' Morrison says, diplomatically.
By the end of the first quarter of 1994, the damage had already been done. Robertson was down 12% and never recovered, mainly due to misbegotten macro bets. By yearend, Tiger was down 9.3% while the S&P 500 was up 1.3%. Robertson had failed at one of the basic functions of a hedge fund--to provide a cushion against a weak U.S. stock market. The suffering continued in 1995. Tiger's positions in global equities were up just 10%. In the U.S., with the S&P up 37%, Robertson was up just 7%. The reason was telling for this onetime ace in U.S. equities. In a letter to investors early this year, he blamed the disaster in U.S. stocks ``to our low net [long vs. short position] exposure and our less than stellar stock-picking.''
Macro continued to generate mainly grief last year, as Robertson's bickering with Morrison continued. A play on the weak yen counterbalanced losing positions but lifted Robertson's assets by only six percentage points. He profited from German, U.S., and Spanish bonds but canceled out gains by being short Japanese and Swedish bonds. Stock positions in Britain, Ireland, India, and Canada were all losers.
As the dreary performance dragged on, former employees say Robertson became less accessible to his army of analysts. Opportunities were sometimes lost. ``By the time you got Julian's attention,'' one ex-analyst notes, ``the buying opportunity could have ended.''
Another byproduct of Tiger's decline was the departure of investors. One former Robertson associate notes that investors, particularly Europeans, left en masse early in 1994 and that the departures continued at a slower pace in 1995. Tiger is mum about withdrawals, saying through a spokesman that they are ``not substantial given the size of the asset base.'' However, the magnitude of the departures can be estimated from the asset numbers by comparing the size of the asset base and the performance of the fund. All told, some $800 million was pulled out of Tiger in 1994 and 1995.
The sour times weighed heavily on Robertson. Impulsive and disorganized, he was hardly a textbook manager in the best of times and could become positively unglued in times of crisis. One former Tigerite remembers the occasion, around the time of the 1987 crash, when Robertson felt he needed to reduce staff. Pretty much at random, he pointed at a group of people and ordered them fired. They were consultants from Morgan Stanley and didn't even work for him. That is denied by Robertson.
Meanwhile, the revolving door of investment pros picked up steam through the 1990s. The stress of working at Tiger--exacerbated by Robertson's violent temper--was one reason. So was the fact that analysts simply did not have the ability to establish a track record by running a portfolio at Tiger. The departed included experienced veterans and promising neophytes. Out went Arnold Snider, star pharmaceuticals analyst, and Lou Ricciardelli, a former Morgan Stanley trade-operations expert who straightened out Tiger's problem-plagued back-office systems. Out went analysts Lee Ainsley and Patrick Duff and Larry Bowman and Bob Bishop and trading chief Tim Henney and...the list goes on and on. One unexpected loss was Griffin, who was widely viewed as a possible successor to Robertson. Griffin wouldn't comment, but his friends say that he, too, grew tired of working under the shadow of the boss, and--though he had some trigger-pulling ability--of not being given enough autonomy.
As the old have gone and the new have arrived, Robertson has come to rely ever more heavily on a handful of key analysts and advisers--and at the top of the list is Dr. Aaron Stern.
``Dr. Stern told me that Julian was very excitable, that he's got a temper, and that I shouldn't take it personally.''
- a former Tiger employee
Hedge funds are Wall Street's last bastion of rugged individualism, with even the largest tending to eschew the trappings of management. But Tiger needed management, and structure. Or to put it another way, Julian Robertson needed it. ``If something happened and he needed someone to do something, somebody would walk by and he'd grab him and say, `Handle it,''' says one former analyst. ``It didn't matter who it was. It could be the plumber.''
Enter a management committee and a board of directors--and Stern. Stern is a Tiger consultant and board member and according to Robertson, also a member of the Tiger management committee. (That is denied by Stern, who says he attends committee meetings but is not a member.) A sharply dressed man of about 70, Stern is a Freudian-trained psychoanalyst who, in the early 1970s, headed the movie-rating unit of the Motion Picture Association of America.
How can a psychiatrist help Tiger? Stern says he does not practice psychiatry at Tiger, but that he ``meets with people on the analytical side on the infrastructure of Tiger and the recruitment process,'' as well as interviews job applicants. Robertson says Stern was brought in, a couple of years ago, to deal with outplacement counseling of some bright young analysts who had to be let go. The aim, he says, was to bolster the self-esteem of young people who had never experienced failure.
But former employees say that if anyone receives counseling from Stern, it is Robertson. They maintain that Stern's duties include calming down Robertson when he has a tantrum and informing Robertson of employee sentiments about him. Two former well-placed Robertson associates maintain that Stern was brought in at Lewis Bernard's insistence after a meeting at which Robertson had a violent tantrum. The allegations are hotly denied by Robertson, Stern, and Bernard. Stern says that while he counsels Robertson after outbursts, he does so as a ``friend,'' not as a therapist. He denies that he has ever violated employee confidences and says that such allegations are sour grapes by disgruntled former employees.
Whatever Stern's role at Tiger, there's no question that Robertson's hot temper and controlling management style have weighed heavily on the company. Smart management has become just as important as stock-picking--and it just isn't there. As the experience with Morrison proves, not even the smartest people can be of much use if they aren't listened to.
Has Robertson considered giving more authority to his people to act on their own ideas? ``We've thought about it,'' says Robertson. ``There may be a time when we go more toward that direction.'' But not now.
``There are not a whole lot of people equipped to pull the trigger.''
- Julian Robertson
Robertson is back from his tour of Europe and Asia. At his side was Chris Shumway, another bright, young, and trusted aide--yet another young John Griffin, so crucial that Shumway's desk is in a corner of Robertson's office. Robertson never got in to see Tietmeyer. If it hurts, it doesn't show. Overall, he says, the trip was ``fantastic.'' While he was gone, the press was alive with talk of the ``carry trade,'' in which hedge funds--including Tiger--supposedly borrowed yen to buy U.S. Treasuries. Robertson is unimpressed, contemptuous. ``We're not borrowing from the Japanese banks to fund our bonds,'' says Robertson. No, but he has been short the yen for a long, long time, and he does own U.S. Treasuries--and in quantities far larger than the $3 billion suggested by the press. His short-yen, long-treasuries position was a major contributor to the gains in early 1996--and as happens with highly leveraged bets, this one turned sour pretty quickly. Tiger was up 17% by the end of January. By Mar. 13, it was up only 10%, with the worst damage done on Mar. 8--the bond-market debacle.
Robertson blushes, his mood visibly darkening, when he is told of the negative comments concerning his temper, his overcontrolling management style, and particularly his relationship with Stern. He presses a reporter for the names of former employees who provided information, volunteering names--as does Stern--of former employees who might have an ax to grind against him. One, he noted, was pressing a sexual harassment case against Tiger. He observes that another, a former employee whom he suspects has spoken against him, was a ``divorcee'' who kept ``smoked salmon in her desk.'' He says he was not, for the most part, upset by the employee departures. Volunteering an example, he notes that one prominent ex-analyst was ``asked to leave.''
Robertson softens when the conversation turns to his boyhood in North Carolina and his personal life. Tiger, he says, was named by his son Spencer, when he was a small boy. Robertson reels off the names of his children: Julian III, Spencer, and Alexander. Spencer? One ex-employee says that two of his children were named Julian. Robertson, reluctantly, concedes that point. ``His name is Julian Spencer. Spencer was my mother's maiden name, and my father thought there should be another Julian in the family.''
Robertson's parents only recently passed away, his father just a year ago. ``Maybe he was too controlling,'' he says of his father. ``I've tried not to be too controlling. I've tried not to do that with my children.'' He has not, he says, ``left them with a legacy,'' and has not tried to encourage them to join the business.
Perhaps that's for the best. But Robertson has another family--his once glorious hedge-fund empire. It is a dysfunctional family of brilliant analysts, headed by a master stock-picker. If only it worked, it would be a monument to greatness--and not to the fall of the Wizard of Wall Street.
By Gary Weiss in New York
In a joint statement, Julian H. Robertson, founder of Tiger Management Corporation, and Business Week announced that they have reached a settlement and Mr. Robertson will withdraw his libel suit against Business Week. No money or other financial consideration is involved. Business Week acknowledged that predictions regarding Tiger's investment performance included in its cover story of April 1, 1996. "The Fall of the Wizard of Wall Street," with the sub-headline "Tiger: The Glory Days are Over," have not been borne out by Tiger's subsequent investment performance, which included a 48% gain before fees (38.4% after fees) in 1996 and a 67.1% gain before fees (53.7% after fees) through December 11, 1997. Business Week acknowledges that these results under Mr. Robertson's management, which far exceed market averages and the performance of other leading hedge funds, were superior by any measure.
12/17/97 Joint Press Release
In a joint statement, Julian H. Robertson, founder of Tiger Management Corporation, and Business Week, a publication of The McGraw-Hill Companies, announced today that they have reached a settlement and Mr. Robertson will withdraw his libel suit against Business Week. No money or other financial consideration is involved. Business Week acknowledged that predictions regarding Tiger's investment performance included in its cover story of April 1, 1996, "The Fall of the Wizard of Wall Street," with the sub-headline "Tiger: The Glory Days are Over," have not been borne out by Tiger's subsequent investment performance, which included a 48% gain before fees (38.4% after fees) in 1996 and a 67.1% gain before fees (53.7% after fees) through December 11, 1997. These performances far exceed market averages and the performance of other leading hedge funds.
In the article, Business Week described how, after many years of stellar returns, including an 80% gain before fees in 1993, Mr. Robertson's Tiger Management delivered below market average results in 1994 and 1995. While the article also noted that Tiger was beginning to do better in early 1996, Business Week said that the "revival has all the makings of a bump on a downward slope." Business Week acknowledged today that Tiger's 1996 and year-to-date 1997 results, under Mr. Robertson's management, were superior performances by any measures.
Among this the article's statements with which Mr. Robertson took issue was the assertion that he no longer "visits corporate managements, and most of his extensive travel during the year is spent educating himself about currency and interest rate trends." In objecting to the article, Mr. Robertson provided Business Week with a list of specific meetings with the managements of more than 55 companies on three continents in the year immediately preceding the article. Robertson's list reflects meetings with corporate managements during Mr. Robertson's travels abroad and at Tiger's offices in New York. Based on that list, Business Week acknowledges that Mr. Robertson had not stopped meeting with corporate managements.
Both sides have agreed to disagree on a number of statements in the article, including one statement that was particularly objectionable to Mr. Robertson. In discussing his management style, the article referred to a "former Tigerite" who is reported to have said that around the time of the 1987 market crash, "Pretty much at random, he (Mr. Robertson) pointed at a group of people and ordered them fired. They were consultants from Morgan Stanley and didn't even work for him." Mr. Robertson denies the incident ever happened and noted that at the time of the 1987 market crash the Tiger organization consisted of no more than 17 people, all known to him personally. Further, both Mr. Robertson and Morgan Stanley state that there were no Morgan Stanley consultants at Tiger at that time. Business Week states that it accurately quoted its source who was well-placed and who spoke on conditions of anonymity. Business Week has declined to disclose the individual's identity. For his part, Mr. Robertson stated that all of the individuals who worked at Tiger at that time (with the exception of one who is deceased) have specifically denied to his counsel that such an incident ever occurred. Because the alleged incident occurred some ten years ago, both sides have agreed to drop the matter.
Updated December 17, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.