Pearson mauled by Tiger Cub hedge funds as short bets pay off

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Four ‘Tiger Cub’ hedge funds have won big from Pearson’s PSON, +0.49%   stock plunge as hefty bets against the company paid off.

A number of U.S. hedge funds with short positions in the educational publisher have netted millions. Pearson’s stock plunged 14% on Thursday after the educational publisher warned on profits, blaming weaker U.S. university sales.

The British company said U.S. students were moving away from textbooks to digital products “more rapidly than anticipated.”

Four Tiger Cub hedge funds, managed by those who used to work at the famous Tiger Management investment firm, were among the big winners, according to short-selling data company Breakout Point.

Tiger Management was started by veteran investor Julian Robertson in 1980 with $8 billion and by the end of the 1990s its assets climbed to $22 billion, before it was closed to outside investors in 2000.

Managers and analysts who worked under Robertson, dubbed ‘Tiger Cubs’ have gone on to manage their own hedge funds.

Philippe Lafont’s Coatue Management, Steven Mandel’s Lone Pine Capital and Andreas Halvorsen’s Viking Global Investors all held significant short positions in Pearson.

However, D1 Capital Partners — led by former Viking partner Daniel Sundheim, who is considered a ‘Tiger Grandcub’ — made the biggest gain from its 2.19% short. On Friday D1 cashed in on some of the profits, reducing its short position to 1.72%.

Sundheim’s hedge fund raised around $5 billion in its debut year in 2018.

The four hedge funds made a combined £41.2 million from the share price drop, with D1 making £20.7 million of that, according to estimates by Breakout Point.

In total short sellers gained £72.5 million from Pearson’s plunge between the market close on Wednesday and the close on Thursday, assuming they kept their position or reduced it at the closing value.

Pearson’s stock has now fallen 21.5% this year.

Operating profit for 2019 will now come in at the bottom of the company’s £590-640 million guidance range, it said last week.

Pearson said full-year revenue in its U.S. college and university arm, which makes up 25% of total revenue, would now fall between 8% and 12%, down from its original guidance of a 0-5% decline.

However, it expected total group revenue to stabilize as other areas of the business—generating 75% of revenue—grew by around 3%.