Hedge funds that bet on Silicon Valley are crushing it

A string of technology-focused hedge funds are having a strong start to the year.

Among them:

• Light Street Capital Management's $930 million Halogen fund is up 28.5% this year through the end of April, according to an investor document reviewed by Business Insider. That's a strong start compared to last year, when the fund fell -1.5%. The head of the fund, Glen Kacher, started his career at Tiger Management, Julian Robertson's famous fund.
• Whale Rock, a Boston-based fund run by Alexander Sacerdote, is up 13% net of fees in the first quarter, according to investor documents reviewed by Business Insider. The firm managed about $1.6 billion at the end of the first quarter, according to the documents.
• Honeycomb Asset Management, started by a Steve Cohen protégé David Fiszel and which manages about $330 million, returned 9.3% net over the same period.

The performance comes as technology has become the most crowded trade, according to a recent fund survey out of Bank of America Merill Lynch. In a client note, UBS also flagged that tech had driven performance for many hedge funds, including positions in Tencent, Alphabet, Alibaba and Facebook.

Morgan Stanley, meanwhile, noted that among north American stocks, 29% of net exposure for hedge funds tracked by the bank was in information tech stocks as of the end of April, according to a recent client research.

Some who track the hedge fund industry are wary about the performance. "This outperformance has coincided with an increase in [funds'] 18 month rolling Beta to the MSCI China Index, whose top holdings have included many Chinese internet stocks such as Alibaba, Tencent, Baidu and Netease," PivotalPath's Mark Doherty said in a statement.

"We believe that the risk in these specific names has increased as more and more hedge funds have added these names to their long portfolios as hedge funds who aren't TMT-focused have put capital to work in stocks that are in the MSCI China Index," he added.

The consultant is not advising clients to shift their hedge fund allocations, but rather to "anticipate that a sell off in stocks in the MSCI China Index may impact various hedge fund strategies in their portfolio."

To be sure, not all tech funds have outperformed. SoMa Equity Partners, a startup founded by Gil Simon, formerly CIO of Apex Capital, was roughly flat for the first quarter.

"Investors would have done well to own mega‐caps AAPL, Amazon (AMZN), and Facebook (FB) in the quarter, which alone contributed to 28% of the S&P 500's 6% return," Simon wrote to letters in an April letter reviewed by Business Insider. "Unfortunately, SoMa did not participate in the Q1 fireworks."

"Our strategy of owning non‐consensus stocks limits our exposure to the mega‐cap names, and our single largest holding, YELP, experienced a significant pullback around its initial 2017 outlook, which we believe will be short‐lived," Simon added.

Soma manages $435 million, according to the letter.