John Griffin: A Former Tiger Cub"s Wavering Fortunes
- By Robert Abbott
Hedge fund owner and manager John Griffin (Trades, Portfolio) had some outstanding years before 2008, but his returns have faded since then.
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Julian Robertson (Trades, Portfolio) and his firm, Tiger Management, had some outstanding years before the mid-1990s, but then faded, and closed to outside investors in 2000.
Griffin was one of the many "cubs" to learn his strategy from Robertson.
Is history about to repeat itself?
Who is Griffin?
Griffin is the billionaire founder of the Blue Ridge Capital hedge fund, which he launched in 1996. He received a bachelor"s degree from the University of Virginia"s McIntire School of Commerce in 1985, and an MBA from the Stanford University Graduate School of Business in 1990, as outlined in an Investopedia profile.
Before completing his MBA, Griffin worked as a financial analyst at Morgan Stanley Merchant Banking Group, from 1985 through to 1987. He later moved to Tiger Management Corporation and became a protege of Julian Robertson (Trades, Portfolio). At Tiger, he was mentored by Robertson, a portfolio manager, and President of the firm from 1993 to 1996. Robertson converted Tiger into a family office firm in 2000, after failing to capitalize on the dot-com surge.
As will be seen in Blue Ridge"s investing strategy, Griffin followed Robertson"s example when he went out on his own at Blue Ridge.
The company
In its March 2017 Form ADV Part 2A, Blue Ridge Capital LLC lists itself as a discretionary investment management and administrative company. The firm"s principle owner is Griffin, who is also its managing member.
It offers funds through two vehicles:
The Flagship Funds has the wider focus of the two. Although its core is long equities, it adopts long and short positions in equities, uses derivatives and trades a broad range of entities, including bank loans, swaps, commodities, foreign currencies and more.
The Long Fund differs from The Flagship Funds by investing in a limited number of equities, and equity-related securities. Normally, it holds 10 to 30 positions, equities with a daily trading volume of at least $20 million or more. It may short the positions in this portfolio, and it buys and sells options and other securities to hedge or to create new profit opportunities. It is a global fund, with both American and international stocks.
As of March 30, 2017, the firm had $12.4 billion of assets under management.
Like most hedge funds, Blue Ridge provides itself with a wide range of profit and hedging possibilities, although it has a general bias toward long equities.
Strategies
To start, let"s go back to Julian Robertson (Trades, Portfolio) and Tiger Management. Griffin was one of more than 40 "cubs" who came through Tiger. In fact, he had been president, which meant he would have had a singularly close relationship with Robertson.
In an interview with the Columbia Business School"s newsletter, Robertson said the best way to manage money was to go both long and short on stocks. On the short side, he said he was looking for bad management, and/or a "wildly" overvalued company in an industry that is declining or misunderstood.
Not surprisingly, Griffin has generally followed the lead of Robertson by also emphasizing long/short portfolios. His longs are usually large cap and high-performance stocks, while he uses the same criteria as Robertson on shorting candidates.
A ValueWalk profile also explains that Griffin does extensive bottom-up, in-depth research on individual companies. That also includes less extensive research on industries.
He is a proponent of checklists, like Charlie Munger. According to ValueWalk, there are three major checklists: industry environment, balance sheet and company valuations.
On the industry list, the first question is whether the candidate company can differentiate itself from bad players in specific markets. Other criteria include:
The relative power of stakeholders.
Moats or competitive advantages.
Required competencies.
Opportunities.
The effectiveness of competitors.
The balance sheet checklist includes:
Business model.
Quality of management.
Financial measures and risks.
The balance sheet is then stress-tested to look for deficiencies in capital structure, inventory and interest coverage. Griffin then turns to profitability and valuation.
Third, his checklist looks at the valuation of a company. Criteria here include:
Earnings.
EBITDA.
Sales and free cash flow yield.
On top of the lists, Griffin develops a timeline, with the intention of finding trigger events for the real valuation to be realized, as well as future news and a position-building schedule.
Finally, he and his analysts then ask themselves if they could explain the company"s business model to a 10-year old.
Griffin has certainly taken his major strategic direction from his mentor; at the same time, he has developed tactical solutions that differentiate him from Robertson. All in all, it appears to be a good checklist for value investors, if they could access them.
Holdings
Griffin holds a diversified portfolio, as shown in this GuruFocus chart:
Given that this portfolio is worth $5.6 billion and his total assets under management total $12.4 billion, we will assume this is the Long Fund portfolio (the concentrated equity portfolio). His quarter-over-quarter turnover is 15%.
These are the top 10 equity holdings in this portfolio:
Visa Inc. (NYSE:V): 6.39%
Facebook Inc. (FB): 5.75%
Bank of America Corp. (BAC): 5.74%
Charter Communications Inc. (CHTR): 5.69%
Citigroup Inc. (NYSE:C): 4.9%
Allergan PLC (AGN): 4.72%
CDK Global Inc. (CDK): 4.47%
HD Supply Holdings Inc. (HDS): 4.4%
Ulta Beauty Inc. (ULTA): 4.39%
Sensata Technologies Holding N.V. (ST): 3.83%
As noted, both Robertson and Griffin like large cap, high-performance stocks, and this list accomplishes that.
Performance
A few of the pieces that help us put together an estimate of what we know about Griffin"s performance:
A net return of 65% in 2007 (ValueWalk)
Lost 8% in 2008 (BusinessInsider)
Gained 7.7% in 2009 (BusinessInsider)
In 2016, it saw assets under management shrink by 12.5% (Pensions & Investments)
We do have consistent information for the past five years, via this TipRanks chart, and it shows Griffin staying just ahead of the hedge fund average, and well below the S&P 500, thanks to poor results in 2015:
Griffin has experienced what might be called the curse of the hedge fund guru: previous grand returns, followed by an inability to keep up with the S&P 500 in recent years.
Conclusion
Like his mentor, Griffin is learning about the risks of high expectations. A few big years, lots of attention, and then mediocre results. Of course, he may spring back when the next correction hits, but today it looks very much like history will repeat itself.
The vaunted long/short strategy may not make sense for the long term. In particular, it seems out of place in a long bull market (as we know in hindsight). While we don"t know the exact reasons for the current malaise, it seems reasonable to assume shorting may be key factor.
For value investors, there"s not much to be gained by looking at Griffin"s strategy and tactics. There may be something to learn from the use of checklists, but investors are better off studying Charlie Munger (Trades, Portfolio).
Disclosure: I do not own shares in any of the companies listed, and I do not expect to buy any in the next 72 hours.
This article first appeared on GuruFocus.
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The intrinsic value of V
