How a Tech Hedge Fund Beat March Selloff to Get 10% Return

(Bloomberg) -- A technology hedge fund founded by two alumni of Coatue Management rose 10 percent in March after steering clear of a selloff in global tech giants such as Facebook Inc. and Amazon Inc.

Sylebra Capital Management’s $1.1 billion fund profited from both bullish and bearish investments in smaller tech companies, according to a person familiar with the matter, who asked not to be identified discussing private information. Half of Sylebra’s gains came from MuleSoft Inc., a U.S. software company that surged 42 percent in March after becoming a takeover target, the person said.

Hedge funds globally posted losses for a second straight month in March, according to data provider Eurekahedge, as escalating trade tensions, presidential tweets, and concerns about weakening global growth worried investors. Thanks to its ability to make both bullish and bearish bets, Hong Kong’s Sylebra benefited from the market selloff, even as rivals betting on rising stocks were caught off guard.

Sylebra favors non-U.S. stocks and smaller and medium-sized companies, the person said, while a representative for the hedge fund declined to comment. It has owned MuleSoft shares since at least the second quarter of 2017. The hedge fund’s performance came as the NYSE FANG+ Index, which includes Facebook Inc., Amazon.com Inc., Netflix Inc., Google parent Alphabet Inc. and Alibaba Group Holding Ltd., tumbled 6.9 percent in March, the most in more than two years.

About a third of hedge funds tracked by Eurekahedge globally made money in March. Technology-focused funds lost an average of 0.2 percent, with only 38 percent of them making money, according to the firm’s data.

Central bank stimulus and investor pursuit of returns in a low interest rate environment pushed up prices of most stocks in 2017. Bets on falling share prices often lost money. Funds that closely match their bullish and bearish investments, like Sylebra, recorded average return about one-third that of peers that bet mostly on rising share prices, according to Hedge Fund Research Inc. They turned the table in March when investor jitters returned.

Sylebra’s Chief Investment Officer Dan Gibson honed his skills as an analyst and partner at New York-based Coatue, whose founder Philippe Laffont worked for Julian Robertson’s Tiger Management and has dabbled in technology investments.

The person declined to identify stocks that Sylebra has bet against. It typically holds bullish positions for two to three years. The March performance left this year’s gain at 5 percent, compared with an annualized 16 percent return since the fund’s inception in 2011, the person said.

©2018 Bloomberg L.P.

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