2014 and early 2015 was a great time for the mid-30s Nehal Chopra: recently named an Institutional Investor Rising Star, the former Tiger Seed's hedge fund Tiger Ratan Capital Management could do no wrong: having received a $25 million investment in 2011 from investing legend Julian Robertson himself (subsequently the amount grew to $100 million) and after a series of impressive annual returns including three straight blockbuster years, gaining 26.3% in 2012, 46.8% in 2013 and 22.3% in 2014, by June 2015, aged only 35, she was running a whopping $1.4 billion.
The financial press would not stop fawning over Chopra. Here is what Economic Times wrote about her in late 2014:
Nehal Chopra has been sprinting ahead of the pack most of her life. She became a top-ranked youth tennis player growing up in Mumbai, and received an MBA from Wharton while most of her peers were getting their bachelor's degrees Before she was 30, she persuaded billionaire Julian Robertson to seed her hedge fund firm Ratan Capital Management. Since 2009, Chopra has averaged 19 per cent annual gains by betting on companies in upheaval, almost triple the industry average. To her supporters, including Robertson, she's a brilliant stock picker.
Chopra pitched Robertson after meeting him at charity events. The billionaire was impressed by her academic pedigree and tennis prowess. After growing up in Mumbai, where she attended Fort Convent and Sydenham College, Chopra graduated in 2002 from Wharton.
In short order, she made countless other financial outlets including both CNBC...
... and Bloomberg TV, where she appeared on Tom Keene's show alongside Robertson himself.
That appearance, however, was her personal "top tick", because shortly thereafter, everything started going very wrong for Chopra, who as it later emerged was heavily invested in a handful of "hedge fund hotel" stocks, many of which were about to suffer spectacular losses. After posting a 15.5% return in the first quarter of 2015, the fund collapsed - largely a function of the implosion of Valeant, eventually recording a 19% loss for the year, a swing of more than 34% points in just nine months. As Institutional Investor reported, the fund continued to implode in the first half of 2016 when it suffered a 51.59% drawdown from May 2015 through June 2016.
As we previously reported and as II notes, like many of the Tiger Cubs and Seeds, Ratan runs a concentrated portfolio but Chopra always took it to a much greater extreme, with Ratan typically owning just seven to nine individual stocks. Think Bill Ackman on steroids. And just like Ackman, Ratan was mauled by its huge bets on pharma companies Valeant and to a lesser extent, Allergan, which started to suffer big losses in the middle of 2015. They accounted for 35% of assets at the end of June 2015, just before the two stocks, especially Valeant, went into their tailspins. Valeant fell 75% in the first quarter of 2016 alone. At the end of Q2 2016 of last year, Ratan liquidated four positions, including Valeant and Allergan.
By the third quarter of 2016 Ratan liquidated four positions again, including two major holdings: Starz, the cable television network that was the firm’s third-largest position, and bottler Coca-Cola European Partners. By the end of the fourth quarter Ratan was much more diversified, holding 20 individual stocks, a lot for the firm. All but six were new positions.
However, it was too little, too late for none other than her original sponsor, and as Institutional Investor reports, Julian Robertson told investors in the Q4 of last year that he was redeeming his money from Chopra's Tiger Ratan Capital Master Fund. Ratan confirmed this in a recent regulatory filing.
In 2016, Tiger Partners, LLC and Tiger Accelerator Seed Holdings, L.P. (“collectively, Tiger”) fully redeemed its investment in funds advised by Ratan and terminated its “seed” arrangement with Ratan. Ratan no longer shares revenues or any economics with Tiger.
Tiger Ratan has even dropped the “Tiger” name from its funds.
In its SEC filing, the firm reported having $375 million in regulatory capital, an inflated figure which includes leverage and notional values of derivatives. At the end of 2016, Ratan’s U.S. stock portfolio was valued at $165 million, up modestly from $135 million the previous quarter, and down over $1 billion from the $1.4 billion in AUM as of the summer of 2015. The firm also disclosed in the filing that it currently has just four employees.
As we wrote back in April when we first profiled Chopra's growing pains, it was not clear if she can afford any more employees with such a modest AUM.
But we were more surprised by Julian Robertson's move, who "disowned" a former Tiger Seed for the first time, prompting questions why: surely her performance wasn't the reason.
* * *
We now know the answer, and not only for Robertson's abrupt withdrawal, but what may have prompted the dramatic collapse of Ratan. It turns out the former "whiz-kid" hedge fund manager was engaging in husband-and-wife collusion, with her husband, Paritosh Gupta, who for all of Chopra's hedge fund career was working for Brahman Capital, and just so happens was sharing inside information with his wife.
On Tuesday afternoon, the SEC announced that it was launching public administrative and cease-and-desist proceedings against both Chopra and her hedge fund Ratan, as well as against her husband, Gupta, and his current employer, Adi Capital Management.
From the complaint summary section:
This matter arises from Paritosh Gupta’s improper sharing of confidential information and advice – obtained from his position as a senior research analyst with a hedge fund adviser (“Adviser A”) [ZH: which we can confirm was Brahman Capital] – with Nehal Chopra, whom Gupta first met in 2006 and subsequently married. Chopra then used that information and advice in operating Ratan Capital Management LP (“Ratan”), a hedge fund adviser that pursued a similar strategy and competed with Gupta’s employer, Adviser A. Unbeknownst to Adviser A and its investors, Gupta also performed certain roles in the operations of Ratan, including providing investment recommendations and advice to Chopra and Ratan. By sharing Adviser A’s confidential information developed and paid for by its clients with Chopra, Gupta caused violations of Section 206(2) of the Advisers Act.
Ratan and Chopra failed to disclose to Ratan’s investors and prospective investors the significant role that Gupta played in Ratan’s investment process and operations. Their failure to disclose such information rendered statements made in Ratan investor letters, due diligence questionnaires, Form ADVs, and other communications misleading.
In January 2014, after leaving Adviser A, Gupta launched Adi Capital Management LLC (“Adi”), a hedge fund investment adviser that pursued a similar strategy to and competed with Ratan and Adviser A. From February 2014 until September 2014, Adi’s Form ADV Part 2A brochure inaccurately stated that Gupta and Chopra did not share confidential investment-related information regarding their funds’ current or potential investments, in violation of Section 207 of the Advisers Act.
Some more details on the relationship between the husband and wife:
Gupta provided advice and support to Chopra as she launched Ratan, including advice on investing and how to build her network in the investment community. As early as August 2008, Gupta helped Chopra draft a presentation to obtain seed capital that delineated the proposed Ratan fund’s investment philosophy, investment strategy, and investment process. In March 2009, Gupta emailed Chopra an offering memorandum of one of Adviser A’s funds that described its investment strategy. The private placement memorandum for Ratan’s first fund, dated April 2009, described a strategy virtually identical to the strategy of Adviser A’s funds.
After Ratan launched, Gupta frequently helped draft and edit certain of Ratan’s communications to investors or prospective investors, including quarterly investor letters, individualized emails, marketing presentations, Ratan “one pager” informational sheets, and due diligence questionnaires. These communications solicited investments in Ratan and described, among other things, Ratan’s investment strategy, key personnel, portfolio composition, performance statistics, and investment ideas. Gupta also drafted and edited certain of Ratan’s communications seeking allocations of initial public offerings on behalf of Ratan, including an offering for which Adviser A was also seeking an allocation (which Gupta knew).
Gupta also played a significant role helping Chopra staff Ratan. Unbeknownst to Adviser A, he drafted or edited job descriptions, reviewed resumes, identified candidates to interview, interviewed candidates, and conducted reference checks. He conducted interviews of some candidates for Ratan in Adviser A’s offices. In some instances, Gupta also provided Chopra guidance and feedback on certain Ratan employees’ compensation and other personnel matters.
As the SEC also writes, not only did Gupta share confidential information from Brahman with his wife, including providing her with research and drafting various materials for her, but Brhaman eventually found out, prompting the firm to ask Gupta to stop.
In mid-April 2011, Adviser A learned that Gupta helped prepare parts of Ratan’s most recent quarterly investor letter, which used language similar to the internal draft of an Adviser A investor letter to describe core positions held by both Ratan and Adviser A. Gupta acknowledged editing and proofreading Ratan’s letter and, after a meeting with one of Adviser A’s principals, signed a document stating that Gupta “may have or may be viewed as having disclosed confidential information” to Chopra, and that he “was asked on prior occasions to make sure to not communicate with [Chopra] in a fashion that would appear to be in violation of [Adviser A]’s confidentiality policy.” The document again directed Gupta not to disclose Adviser A’s confidential information.
The agreement achieved little: after April 2011, Gupta continued emailing the same type of Adviser A confidential information from his Adviser A email account to his personal email account and, from there, to Chopra.
Things get more interesting when we learn that much of Chopra's portfolio was basically recreating Ratan's own positions.
In November 2011, Gupta and Chopra married. Adviser A had in place a personal trading policy that, among other things, prohibited most personal trading, including in individual securities, by its employees and their spouses. In January 2012, Gupta requested, and Adviser A granted, an exemption from that prohibition for trading by Chopra conducted as portfolio manager of Ratan, so long as Chopra agreed to allow a law firm to review Ratan’s portfolio and Adviser A’s portfolio on a monthly basis, including a comparison of holdings and the trading in those holdings.
In January 2012, the law firm reported to Adviser A and Ratan a list of positions shared by Adviser A and Ratan, which reflected a substantial overlap of the names in Adviser A’s and Ratan’s portfolios. The size of this overlap remained relatively consistent through April 2013, and the law firm continued to report this finding monthly to Adviser A and Ratan through May
In February 2013, Ratan publicly filed its first Form 13F with the Commission, which also showed that certain of its positions overlapped substantially with Adviser A’s positions.
As a reminder, this marked the peak of Ratan's returns, with the fund returning 46.8% in 2013 and 22.3% in 2014. Little did the fund's LP know, however, that their return was largely a function of Brahman's own research.
Fast forward to the end, where the SEC finds that the husband-and-wife duo violated a bunch of SEC sections, resulting in a settlement which censures Gupta, Chopra, Adi and Ratan, resulting in penalties of several hundred thousand.
More importantly, it is safe to say that Robertson was aware of the pending settlement earlier in 2017, and is why he took the unprecedented step of "disowning" what was once the most prominent name among the young hedge fund community.
And with that, we can now close the book on yet another former investing "whiz kid."