Billionaire Julian Robertson is one of the greatest investors in the world, although many might argue that his best achievement is not what he has done while running Tiger Management, but what he has done since closing the fund some 18 years ago. Julian Robertson played a key role in the launch and growth of many successful hedge funds. These hedge funds were founded and are run by an elite group of investors that had worked under Robertson and are commonly known as Tiger Cubs. Many prominent names in the hedge fund industry, such as Andreas Halvorsen’s Viking Global, Lee Ainslee’s Maverick Capital, Philippe Laffont’s Coatue Management and Chase Coleman’ Tiger Global Management are just some of the few Tiger Cubs. As Tiger Cubs grew since 2000, they spanned a new generation of investors, referred to as Tiger Grand Cub. One of the most successful Grand Cubs is Tiger Pacific Capital, an Asia-focused fund managed by Run Ye, Junji Takegami and Hoyon Hwang.
Run Ye, Junji Takegami and Hoyon Hwang launched Tiger Pacific Capital in 2012 after having worked at Tiger Asia Management, a New York-based fund that was shut down the same year on the back of a regulatory probe in Hong Kong. Julian Robertson invested in Tiger Pacific Capital.
In a statement announcing the partnership between Tiger Management and Tiger Pacific Capital, Julian Robertson was quoted as saying that “Asia is the best area of the world to practice hedge fund business. There are great companies at the initial phase of their growth, and, on the other side, companies with huge over-valuations or even possible frauds.”
Well, it looks like Tiger Pacific Capital managed to tap into the opportunities presented on the Asian market, or at least it looks so from the performance of their stock picks. At Insider Monkey, we calculate a fund’s returns by taking into account the weighted average return of its stock picks in companies with a market cap of over $1.0 billion. This helps us to identify the best funds’ whose stock picks we can imitate under our small-cap strategy (read more details here). According to our calculations, Tiger Pacific Capital’s stock picks returned nearly 15% during the fourth quarter and it ended 2017 almost 89% in the green, which makes it the best performing fund of the year among over 600 funds in our database.
As of the end of 2017, Tiger Pacific Capital has an equity portfolio worth $186.59 million and it has regulatory assets under management worth $633 million, according to its latest Form ADV (filed in August). The fund’s equity portfolio is relatively small, containing just 13 positions, the top two of which, Noah Holdings Limited (ADR) (NYSE:NOAH) and SINA Corp (NASDAQ:SINA) amass nearly half of the value. Noah Holdings Limited (ADR) (NYSE:NOAH) and SINA Corp (NASDAQ:SINA) are mostly responsible for Tiger Pacific Capital’s returns last year, as both stocks gained 111% and 60%, respectively during 2017.
On the next page, we are going to discuss in more detail two stocks in which Tiger Pacific Capital more than doubled its position during the last three months of 2017, and two stocks that it added to its portfolio.
Even though SINA Corp (NASDAQ:SINA)‘s shares returned over 60% last year, Tiger Pacific apparently sees more room to growth, as it boosted the position in the company by more than 110% over the quarter to 264,194 shares worth $26.50 million heading into 2018. Aside from Tiger Pacific, there were 33 funds long SINA Corp (NASDAQ:SINA) at the end of 2017, compared to 30 funds in our database that had held shares a quarter earlier.
The stock of the Chinese online media company is already 18% in the green year-to-date, mainly on the back of a strong fourth-quarter report, which came above expectations and showed a 61% revenue growth. SINA Corp (NASDAQ:SINA) also improved its gross margins to 75% from 70% and advertising gross margin to 76% from 72%. The stock also got a boost from Weibo Corp (ADR) (NASDAQ:WB), a social media company that was spun-off from SINA Corp (NASDAQ:SINA) and in which SINA owns an 11% stake. Weibo reported an excellent fourth quarter with better-than-expected top and bottom lines and a threefold increase in net income, and provided first-quarter revenue guidance well above the consensus.
The other company in which Tiger Pacific Capital more than doubled its stake is Bitauto Hldg Ltd (ADR) (NYSE:BITA), an online provider of content and marketing services for the automotive industry in China. During the fourth quarter, Tiger Pacific Capital added 233,444 shares to its stake, taking it to 358,180 shares valued at $11.39 million, after having initiated a position a quarter earlier. Bitauto Hldg Ltd (ADR) (NYSE:BITA)’s stock lost over 28% during the last quarter of 2017, amid a third-quarter report that included better-than-expected EPS and revenue, but also showed a wider net loss due to options granted by Yixin to its employees during the third quarter. Yixin is the largest online car retailer in China, which was spun-off from Bitauto Hldg Ltd (ADR) (NYSE:BITA) in 2014, but kept a controlling stake, with Tencent Holdings and JD.Com Inc (ADR) (NASDAQ:JD) also holding 24.3% and 12.7% stakes, respectively.
Now, let’s move on to some of Tiger Pacific Capital’s new positions, the largest of which is in TAL Education Group (ADR) (NYSE:TAL). Between October and December, Tiger Pacific acquired 500,300 shares of the company worth $14.86 million, which makes it the fourth-largest position in the fund’s equity portfolio. The investment seems to be already paying off, since TAL Education Group (ADR) (NYSE:TAL) has appreciated by nearly 30% since the beginning of the year. TAL Education Group (ADR) (NYSE:TAL)’s fiscal third-quarter EPS and revenue were above the consensus, with revenue also growing by 66% to $433.30 million on the back of an 85% increase in student enrollment to approximately 1.54 million. For the current quarter, TAL Education Group (ADR) (NYSE:TAL) expects revenue in the range of $474.5 million to $480.8 million, which indicates annual growth between 50% and 52%.
Tiger Pacific also initiated a stake in another education services provider, Four Seasons Edu (Cayman) Inc ADR (NYSE:FEDU), in which it disclosed a $6.61 million stake containing 733,887 shares. Four Seasons Edu (Cayman) Inc ADR (NYSE:FEDU) is the largest after-school math education service provider for elementary school students in Shanghai and its stock conducted its US IPO in November. Since it went public, the stock is down by over 23%, probably signaling a cool down in investor interest towards Chinese education services providers. According to FT, in 2017, there were at least seven private education service companies that went public, four of which listed in the US, including Four Seasons Edu (Cayman) Inc ADR (NYSE:FEDU). The Chinese private education industry is very large and mostly fragmented with many companies acting as regional players. Four Seasons Edu (Cayman) Inc ADR (NYSE:FEDU) make take advantage of this opportunity and expand beyond Shanghai and get involved in other areas of STEAM (Science, Technology, Engineering, Arts and Mathematics) education.