Tiger's Julian Robertson roars again

Julian Robertson has teed up a whole new version of his legendary Tiger Managment, with stunning results.

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(Fortune) -- One early Wednesday morning last July, when the subprime mortgage meltdown first began to rock the markets, I found myself sitting with investing legend Julian Robertson in the cabin of his Gulfstream V jet in Auckland, New Zealand. We were en route to one of the two world-class golf courses he has built in the island nation. But his mind was on the markets halfway around the world. As the flight crew prepared for takeoff and his wife Josie and their other guests found their seats, the 75-year-old billionaire used his mobile phone to check in with his office back in New York. "How are the subprime positions looking?" he asked excitedly. "Mm-hmm. Wonderful."

He hung up and turned to me. "My gosh, this has been the most extraordinary period of my career as an investor," he said. The big short bet he had been riding - by owning credit default swaps on subprime debt - was suddenly paying off richly as values plummeted. As his mouth turned up in a half smile he added, "I think this is the best month I've ever had. It's got to be."

Not bad for a "retiree" who was written off by many as washed-up when he stepped away from managing other people's money almost eight years ago.

As I learned in a series of conversations with Robertson over the past six months, the man once known as "The Wizard of Wall Street" for the incredible success he had running his hedge fund firm Tiger Management has been on a magical run while most of the world wasn't watching. According to returns provided by Robertson exclusively to Fortune, he earned a stunning 76.7% return in 2007 managing a portfolio of his own money. That rivals his best years running his flagship Tiger fund in the 1980s and 1990s, when he was an undisputed Master of the Hedge Fund Universe and grew Tiger from $8 million at its launch to over $22 billion at its peak in 1998.

Since he shut down the Tiger fund on March 30, 2000, according to the records provided to Fortune, Robertson has generated a total return for his own pool of capital of 403.7%. Given that his personal fortune was estimated to be close to $1 billion after he closed Tiger, it's not hard to calculate that he's a much wealthier man today than he was just a few years ago.

And, looking back, the down years near the end of the Tiger fund's run - he lost 4% in 1998 and 19% in 1999 as rival investors were riding the dot-com bubble to spectacular returns - appear more like a really bad slump than the total collapse that was described in most press accounts at the time.

Perhaps just as impressive - and just as lucrative - as Robertson's recent performance managing his own money, however, is the way that he's reinvented Tiger Management. The firm that was founded to support Robertson's own funds now provides infrastructure for and invests in a total of 34 hedge funds, employing a wide variety of different strategies, with a total of about $26 billion under management. That pool of capital grew tremendously over the past year as a number of the funds turned in spectacular returns - some of them even better than that of their mentor.

Together, before fees, the 34 funds in which Robertson has an ownership stake averaged a return of 34% in 2007. By contrast, the S&P 500 had a total return (including dividends) of 5.5% in 2007 and the Dow returned 8.9%. The CSFB/Tremont Hedge Fund index, an asset-weighted measure of the performance of some 3000 funds, returned 12.5% for the year. Only four of the Tiger-affiliated funds lost money and ten of them generated gross returns of better than 50%. Scott Booth's Eastern Advisors fund returned a Tiger-best 125% before fees, while the worst-performing was down 15.2%.

Robertson has for years had a well-deserved reputation for spotting and developing talent. During his glory years managing the Tiger fund, the North Carolina native surrounded himself with bright, highly competitive, young men - often from southern universities - and worked them hard for their best ideas. Known as the "Tiger Cubs," a number of them graduated and became extremely successful hedge fund managers in their own right, including John Griffin of Blue Ridge Capital, Lee Ainslie of Maverick Capital, Andreas Halvorsen of Viking Global, and Steve Mandel of Lone Pine Capital.

There was a new generation of talent in place at Tiger when Robertson unwound the fund in 2000, and he decided to give some start-up money to a handful of the sharpest analysts on staff and mentor them. These were the first "Tiger Seeds," as he calls the money managers currently affiliated with the firm. "I wanted to continue to have some young people around," says Robertson. "I didn't want to go from age 70 to Methuselah. So we kept the space, which seemed sort of silly at the time, and we seeded a few guys who had worked for us in starting new hedge funds. And this has succeeded beyond my wildest dreams. It's been an unbelievable success. And it's happened because of them. We selected good people, but they are the ones that have manufactured the record not me."

Two of the "Tiger Seeds" with the longest and best records are Bill Hwang of Tiger Asia and Chase Coleman of Tiger Global, each of whom were in the original group of new funds to set up shop at Tiger's office at 101 Park Avenue near Grand Central Station in midtown Manhattan. Hwang's fund returned 55% in 2007 before fees and has a seven-year average of 40.4%. Coleman made a gross return of 91% for Tiger Global last year and his seven-year average return is 43.7%.

As a minority partner in each fund, Robertson pays fees like other investors but also collects a piece of the profits. And he presides over bi-weekly investment meetings in which the managers share ideas and debate strategies. "I get a nice chunk of their action, of their 20%, and it's a very good system - particularly for me, at my time in life," he says. "I've gotten re-energized. It's wonderfully fun."

Robertson emphasizes that he doesn't dictate how each manager should run his fund. He shared his credit swap approach to shorting subprime debt with the whole Tiger clan but only some funds employed it. "Julian is just masterful at how he manages the whole operation without having any real management role," says Mark Yusko, the founder of $10 billion hedge fund of funds Morgan Creek Capital Management. Robertson is an investor in Morgan Creek and, in turn, Yusko invests in about two-thirds of the Tiger Seeds. Yusko adds: "I think Julian is the greatest identifier, backer, encourager, and developer of talent that our business has ever seen. He's also the most competitive guy I've ever met. The beautiful thing about his life now is he gets to cherry pick the very best ideas from the best guys on the planet."

Appropriately enough, the biggest bet that Robertson has in his own portfolio at the moment came, he says, from a former Tiger who he had given some ideas on subprime shorts. Robertson has shared the strategy with the seed funds and some of them have followed him into it - with great success so far. Here's the idea: In the fall, Robertson invested in a derivative called a "curve steepener" that allows him to be long the price of two-year Treasury and short the price of the ten-year Treasury - betting that the difference, or curve, in the yield between the two will increase.

The investment reflects a negative outlook on the prospects for the U.S. economy that has been building in Robertson for years. He believes that the Federal Reserve will continue to flood the economy with money, weakening the currency and ultimately causing the Japanese and Chinese central banks to stop purchasing Treasuries, which will drive the price of 10-year bonds down. It's a macroeconomic hedging strategy that has already paid off handsomely.

So far in 2008, the difference in the between the two bonds has already increased from 97 to 138 basis points. "I've made a big bet on it," he says. "I really think I'm going to make 20 or 30 times on my money." Considering the momentum he has, it wouldn't be a surprise.