Tech-Focused Hedge Fund to Return $2 Billion to Investors

As investors nurse steep losses from  technology stocks, one hedge fund has decided to return money to investors and turn its focus to companies not listed on the stock market.

Coatue Management, the $7 billion technology-focused hedge fund founded by Philippe Laffont, will return more than $2 billion to investors in its flagship fund.

The decision, which Mr. Laffont called “tough but fair and necessary,” comes after the hedge fund’s flagship fund lost nearly 9 percent in March, according to a letter to investors. Since the start of the year, it is down more than  7 percent. Mr. Laffont said the firm had been considering cutting the firm’s size over the past 18 months.

“Coatue lost money on both sides of the portfolio: long and short,” Mr. Laffont wrote. “We have dealt with tough markets in the past, however. We are confident that we have the ideas and risk management to navigate this environment.”

The firm, which recently opened an office in the heart of the Silicon Valley venture capital  world, on Sand Hill Road in Menlo Park, Calif., has plans to raise money for a second so-called hybrid fund that will focus on venture capital investments in new technology companies, according to a person briefed on the fund’s plans.

Mr. Laffont also said the move will allow the firm to “go back on the offence.” Coatue is among a group of hedge fund investors, including Chase Coleman of the New York-based hedge fund Tiger Global, who are participating in fund-raising rounds for some of Silicon Valley’s hottest new start-ups. Both Mr. Coleman and Mr. Laffont worked for Julian Robertson’s hedge fund empire Tiger Management and are considered “Tiger Cubs.”

Coatue has invested in a series of start-ups like Snapchat, Hotel Tonight and Box, which filed plans for an initial public offering in March. Last week, the quirky ride-sharing company Lyft announced it had received $250 million from investors including Coatue.

The hedge fund plans to raise money for a new fund that will be more focused on private equity-type investments similar to those it has made in recent years, according to someone familiar with the firm’s thinking. The new fund would be capped at around $500 million, the person added.

Coatue was not the only hedge fund to suffer blows in the first quarter, and many investors in technology stocks were burned in March when some of the sector’s highest flying stocks came to a crashing fall.

Shares of companies including Blackberry and Tesla have plummeted by the double digits, after a strong run up over 2013, fueled by investor appetite for companies that promised high growth.

For many, the exuberance had been akin to the technology bubble in 2000.

Referring to the market moves in March, Mr. Laffont â€" who has been investing in technology stocks for more than a decade â€" told investors that the jolt was “as sudden and deep as some of the gut-wrenching dislocations of 2000-2002 and 2008-2009.”

Coatue’s letter was reported earlier by CNBC.