London-Based Hedge Fund Reels as Tech Bet Goes Wrong


And then there is Marcho Partners LLP, a tech-focused fund founded by a one-time deputy of tech investor Chamath Palihapitiya. The London-based fund, which had over $1 billion in assets under management at its peak, was down nearly 84% through June 30, according to a summary Marcho sent to its investors, marking one of the worst-known performances for a hedge fund. so far in 2022.

Behind the dismal results: a leveraged bet on a relatively small number of highflying growth stocks that have plummeted in value, such as Shopify Inc.

and British online used-car retailer Cazoo Group Ltd.

The fund did not respond to requests for comment, and a representative who answered the phone said the company’s policy was not to comment to the media.

Hedge funds are generally meant to avoid the steep losses of the broader market by hedging their stock picks, typically by betting against other stocks through shorting.

But as the tide recedes in the market, the losses at some tech-focused funds have been surprisingly large. Tiger Global Management, one of the biggest, was down 50% in the first half of the year in its flagship fund, thanks to bets on companies including Carvana. Co.

and Shopify.

The firm has told investors it was disappointed in its own performance, and was determined to make back losses.

The average stock-picking hedge fund lost 12% in the first half of the year, according to data-research company HFR, while the S&P 500 was down over 20%, including dividends.

Marcho Partners’ performance was significantly worse than some popular tech stock funds such as Cathie Wood’s flagship Ark Innovation ETF, as well as bitcoin. Both fell more than 57% in the first half of the year.

“Anything with the word ‘hedge’ in it simply isn’t supposed to go down three to four times as much as equities,” said Andrew Beer, founder of Dynamic Beta Investments, which manages funds that replicate hedge-fund portfolios. “It’s an astonishingly bad result.”

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Marcho was launched in 2019 by Carl Anderson, who ran a hedge-fund division of Mr. Palihapitiya’s firm, Social Capital. mr. Anderson struck out on his own after Mr. Palihapitiya stopped taking outside investment and wound down the hedge fund in 2018 amid a wave of departures.

A spokesperson for Mr. Palihapitiya declined to comment.

mr. Anderson set up a relatively small fund in London, aided by investors including a subsidiary of the Belgian holding company Groupe Bruxelles Lambert SA,

which put in 150 million euros, equivalent to about $150 million. A Groupe Bruxelles Lambert spokeswoman declined to comment.

mr. Anderson bet on an array of tech stocks, largely software companies and online platforms, including Spotify Technology SA

and videogame software maker Unity Software in 2019 and 2020. The approach was one of concentration: He held positions in a relatively small number of stocks, and amplified his bets with leverage, roughly $1 for every dollar invested, as of June 2022, according to documents Marcho provided investors.

After central banks flooded the markets with money during the Covid-19 pandemic and optimism grew about the reach of technology, Mr. Anderson and his fund reaped a sizable windfall. By the end of 2020, the fund was up 146%—a huge return for a hedge fund—and assets under management passed $1 billion.

As prices roared upward in 2021, the fund plowed money into special-purpose acquisition companies, including SPACs run by Mr. Palihapitiya. It also increased the size of bets on software companies. Amid numerous bad months and a rocky second half of the year for SPACs and technology, the fund ended 2021 down more than 13%.

The waters became choppier in 2022. After falling 36% in January, the fund lost money every month, including 20% ​​in June.

Shares in Shopify,

SHOP 4.62%

one of its largest positions, fell 77% in the first half of the year—a pain made worse when the fund bought more of the stock early in the year, doubling its shares. Another bet, Argentina-based e-commerce platform Mercado Libre, fell 52%.

By far the fund’s biggest loss was on Cazoo, which rode a pandemic boom in used cars and listed by merging with a SPAC in 2021 at a roughly $8 billion valuation. While Cazoo earlier projected that sales would soar for years, revenue has been less robust than forecast, and losses significantly larger as the used-car frenzy of the pandemic has abated.

Marcho’s shares in Cazoo were valued at $15 million as of June 30, down from $125 million at the start of the year, according to calculations from FactSet..

Write to Eliot Brown at Eliot.Brown@wsj.com

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