LDN - Business

Fund managers talk up short-selling ideas at New York conference

[May 03, 2018] By Svea Herbst-Bayliss

NEW YORK (Reuters) - Hedge fund managers will take center stage at a conference in New York on Thursday to call out companies they are wagering against.

Years of strong equity gains have battered short sellers betting on a company's stock price to fall, marking a harrowing ride for some as they watched their targets climb.

Billed as the first conference to focus exclusively on shorting, the Kase Learning Short-Selling Conference in New York will feature industry icons like David Einhorn of Greenlight Capital and Carson Block of Muddy Waters.

It will also feature less well-known investors including Spruce Point Capital Management's Ben Axler, Aristides Capital's Chris Brown and Kerrisdale Capital's Sahm Adrangi.

Speaking at a private club in midtown Manhattan, they will present ideas, share tips and may even commiserate after years of lean returns.

Short sellers have often drawn attention with takedowns like Muddy Waters' allegations of fraud at timber company Sino-Forest, which subsequently filed for bankruptcy in 2012.

But more recently some bets against high-flying names like Tesla Inc <TSLA.O> have backfired as equity markets continued to surge.

"After a nine-year bull market, (short selling) was like swimming upstream," said conference organizer Whitney Tilson, who credits short-selling with saving his own hedge fund during the 2007-2009 financial crisis.

"No one does it well," Tilson added. He shuttered his fund last year and is now focusing on teaching the next generation.

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Last year dedicated short-sellers lost an average 10 percent as other hedge funds gained 6.6 percent, according to Hedge Fund Research data. The S&P 500 meanwhile gained 22 percent.

But short-sellers may have regained an edge after a burst of market volatility earlier this year fueled by fears of rising U.S. interest rates and the Trump administration's tough talk on trade.

"We were the canaries in the coal mine," Tilson said about investors including Einhorn, who bet that Lehman Brothers would crash months before the investment bank filed for bankruptcy in 2008.

Tilson himself shorted Lumber Liquidators in 2015, accusing it of selling flooring laced with cancer-causing materials.

While there are loud critics who wage public campaigns against companies they short, many other short-sellers had long kept positions secret for fear of losing access to corporate management or retribution from rival Wall Street investors through a so-called short squeeze.

"Now more than ever I want to hear ideas on the short side and the younger managers are more willing to talk," Tilson said.

Adrangi, whose Kerrisdale Capital often announces short bets, said publicity can help create buzz around an idea and that shorting is essential for well-balanced portfolios.

"The reason investors are paying hedge fund fees are to uncover alpha and shorting can help with that," he said.

(Reporting by Svea Herbst-Bayliss; Editing by Meredith Mazzillli)

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