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Ultra-Wealthy Club That Shorted Market Hunts for New Options

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Michael Sonnenfeldt has one of the best networks in the world of wealth.

He’s the founder of Tiger 21, a group of more than 750 investors that meet monthly, in gatherings of 15 or so, to share perspectives and debate investments that are typically conservative and longer term.

Last month though, with fears of coronavirus growing and concern over the government’s slow response, members in his network were convinced the best opportunity was a short-term play -- betting against the S&P 500 Index. That left Sonnenfeldt and other members with “3, 4, 5, even 10 times what we paid” for the put options they bought, he said.

It sounds lucrative, but you have to keep it in perspective, he said, declining to disclose how much they wagered.

“It just offset losses elsewhere in the portfolio.”

Shorting stocks is a far cry from how most Tiger members approach investing. The group of multimillionaires tends to be conservative and keeps, on average, 12% in cash. Members are less exposed to public equity markets than the regular investor, with the average portfolio holding 28% in real estate and 24% in private equity.

Public Markets

The group does invest in public markets under certain circumstances and likes to develop lists of stocks to buy at a certain level, said Sonnenfeldt. “After Rule No. 1, which is not to panic, Rule No. 2 is to keep the deck clear enough so that you can take advantage of opportunities if they present themselves,” he said.

Sonnenfeldt said one popular holding presented as a trading idea is Golub Capital BDC, which provides loans to middle-market companies and whose shares have tumbled about 18% this year. It’s popular for its dividend, and while the credit markets are getting roiled by the market turmoil, Sonnenfeldt said he sees no indications at this point to suggest the dividend is at risk.

Many members are already invested in a private fund at Golub whose holdings mirror those of the publicly traded entity. That means they have a good sense of when the public stock’s value is out of whack with underlying holdings, he said.

Tiger members are also watching for opportunities to buy businesses outright. As someone who likes to buy and sell companies, Sonnenfeldt keeps more of his wealth in cash than most members, at about 20%. He sold a large minority stake in Tiger 21 to a private equity firm at the end of 2018.

The small company keeping Sonnenfeldt busy is a German maker of computers for the solar industry that his family office, Muus & Co., invests in. The Chinese factories that builds its products have shut down.

“I know how to bet for or against a company, but I don’t know how to bet against Covid-19 and what its implication will be,” he said. “The biggest decision we’ve made recently is to continue backing the company.”

The market drop may present an opportunity for the German company if competitors become willing to be acquired at prices they’d never consider at another time, he said.

As for Tiger 21, coronavirus fears are sparking more virtual meetings. Sonnenfeldt sees an upside to that: “The minute you go to video you can mix in more people from around the world so you get even more divergent input.”

By Suzanne Woolley

Bloomberg Business

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