Tech hedge funds soar, piggybacking on Nasdaq rally

NEW YORK, Dec 18 – A number of US equities hedge funds focused on technology are set to post double-digit returns this year, boosted by a powerful rally in the Nasdaq and after being hard hit in 2022, according to performance numbers obtained by Reuters.

San Francisco-based SoMa Equity Partners’ long/short fund, led by chief investment officer Gil Simon, soared 48% this year through November, according to a document, versus a 36% gain in the Nasdaq. Last year, the fund was down 33.9%.

Whale Rock Capital’s long/short rose 28%, compared with a decline of 43% last year, two sources familiar with the matter said. Tiger Global Management’s long/short fund was up 27%, a third source said – it lost 56% last year.

Coatue Management was up 20% through November, a source familiar with the return said. Last year, it was down 19%.

The so-called TMT hedge funds’ (technology, media and telecommunications) performance comes as the Nasdaq surged 41.3% so far this year fueled by investors bets on the prospects of artificial intelligence. That compared with 2022 when the index fell 33%.

This year’s trend has mainly benefited the so-called Magnificent Seven mega-cap growth and technology companies: Apple, Microsoft MSFT.O, Alphabet, Amazon, Nvidia,t Meta Platforms  and Tesla.

In a letter to investors seen by Reuters, SoMa Equity told its clients it had holdings in Microsoft, Amazon and Meta. Still, those shares were not among SoMa’s five top contributors to performance in the last quarter. The hedge fund profited the most from exposure to Universal Music Group NV, Wix.Com Ltd, Uber Technologies Inc, Varonis Systems Inc,  and Atlassian Corporation, it said.

On the short side, bets against consumer-led shorts related to automotive, travel and luxury spending also helped performance, according to the letter.

On average, TMT long/short hedge funds are up 14.2% this year through November, according to data provider PivotalPath, after tumbling 22.4% in 2022.

The numbers show they are on track for a “semi-magnificent” year as on average they were not able to recover from previous losses or beat the Nasdaq.

Jon Caplis, Chief Executive Officer at PivotalPath, which tracks over $3 trillion in hedge funds, said that TMT hedge funds started this year with a lower exposure to the Nasdaq, as they reduced their risk appetite throughout last year amid mounting losses.

“While the Nasdaq has roared back, gaining 36% through November, being levered down caused TMT managers on average to catch much less of this rally,” he said.

(Reporting by Carolina Mandl, in New York; editing by Jonathan Oatis and Josie Kao)