Robert Citrone, founder of Discovery Capital Management and a member of the famed “Tiger Cub” group of hedge fund managers, is bracing for a stock market correction by significantly cutting his firm’s equity exposure, according to a report by Institutional Investor.
The report cites Citrone as revealing in an investor letter in January that Discovery has reduced its net equity exposure to 25%, down from 50% at the end of 2024. The firm aims to go “flat to short” in developed markets in the coming weeks. Citrone has forecasted a market correction of 5-7%, which, while not a major sell-off, he believes warrants reducing risk and even taking short positions.
“We see valuations, sticky inflation pushing 10-year yields toward 5%, and uncertainty around tariffs and expenditure cuts by [Elon] Musk as key catalysts for a potential correction,” Citrone wrote in the letter.
Discovery Capital operates as both a macro trader and equities specialist. The firm posted a 2.9% gain in January, following impressive returns of 52% in 2024 and 48% in 2023. Despite this performance though, Citrone remains cautious, citing historically high valuations relative to interest rates and the global over-reliance on U.S. corporate investments across venture capital, private equity, and credit markets.
Citrone also highlighted a shift in the artificial intelligence (AI) narrative, spurred by the debut of China’s DeepSeek model, which has raised questions about the sustainability of current AI valuations. DeepSeek, reportedly developed at a fraction of the cost and energy consumption of competing systems, signals the early stages of AI’s commoditisation, Citrone explained.
“We believe this could reshape the broader AI ecosystem,” he noted, adding that Discovery has adjusted its AI-related positions accordingly.
