Inside the world of activist short sellers

One thing to start: It was great to see so many of you at our Future of Asset Management Europe event in London last week. If you missed it, catch up on the video on demand here 

And one podcast: My colleague Katie Martin had a blast recently recording a couple of episodes of the Unhedged podcast on the road at the Kilkenomics economics and comedy festival in Ireland. Listen here

In today’s newsletter:

• The undercover hedge funds financing activist short sellers 

• How Rachel Reeves plans to reform Britain’s pensions industry

• Gold suffers worst week in three years as investors weigh Trump victory

The undercover hedge funds financing activist short sellers

Last December renowned short seller Jim Chanos convened his annual Bears in Hibernation get together in New York. The motley group of hedge fund managers, academics and private investors analysed which of their bets had done well in 2023 and looked ahead to their top stock picks for this year. 

But behind the bonhomie, times were tough for short sellers. Days earlier Chanos, a self-styled “real-time financial detective who is incentivised to root out fraud”, had told his backers he was closing his main short-focused hedge funds after more than three decades. 

The move was not because he saw any lack of investment opportunity but because he found that a short-only portfolio was an increasingly tough sell to investors. Assets in his firm Kynikos Associates had plummeted from a peak of $7bn at the end of 2008 to $300mn. 

“The longer markets stay ebullient and stay elevated, particularly in the US, the fewer people think they need hedged products or any type of funds that might provide protection to the downside,” Chanos told the Financial Times. 

In this fascinating Big Read, Ortenca Aliaj, Kaye Wiggins and I explore how, as traditional short sellers like Chanos have fallen by the wayside, activist short sellers such as Carson Block’s Muddy Waters and Nate Anderson’s Hindenburg Research have grown in stature.

We delve into the financial agreements between the forensic research firms that do the digging and the secretive hedge funds that act as their silent partners to fund these trades — a cohort that is coming under increasing regulatory scrutiny. 

Not content with waiting for price discovery to show up in the markets, activist short sellers blast out their findings through interviews, social media campaigns and publishing research reports. 

Their approach has divided the market. To their proponents, they are a necessary voice of reason that counteracts the animal spirits driving market euphoria, especially during periods of heightened monetary stimulus. 

But their detractors argue that activist short sellers working together to sow fear, uncertainty and doubt about a company’s operations can become a self-fulfilling prophecy, moving markets just by revealing a bet against a particular company. This approach is akin to “walking into a crowded cinema and shouting fire”, one long-only investor says. 

Where do you stand on this? Email me: harriet.agnew@ft.com

Reforming Britain’s pensions industry

Chancellor Rachel Reeves used her Mansion House speech last week to propose a major overhaul to £1.3tn of the UK’s pension assets. The push is to drive investment in fast growing British companies and infrastructure through a series of ‘megafunds’, inspired by those in Australia and Canada. 

Policymakers are planning to force rapid consolidation across defined contribution workplace pensions — forecast to manage £800bn by 2030 — and the local government pension scheme, on track to reach £500bn by the end of the decade.

By forcing schemes to merge into funds of at least £25bn of assets, the government estimates it can unlock up to £80bn of investment into productive assets and deliver better returns for savers.

The hope is that a large chunk of this will find its way into the UK. Australia’s large DC superannuation schemes currently invest 45 per cent of their equity allocation in their domestic market, with 13 per cent of funds allocated to private markets.

In the UK, just 8 per cent of DC pension equity investments are held domestically, with 4 per cent allocated to unlisted equities and infrastructure.

UK pensions minister Emma Reynolds has left the door open to forcing pension schemes to invest more in British assets if the reforms fail to drive savings into domestic infrastructure and companies.

In an interview with my colleagues Mary McDougall and George Parker, she said that while ministers had not taken steps to force pension funds to invest in productive British assets, it could reconsider “mandation” if the measures did not boost pension investment.  

“We’re not talking about it for now, but let’s see where we get to,” Reynolds said. “Investment in pensions is, as you know, very generously provided for in terms of tax relief.”

Reynolds added that a decision to take further measures to push a higher allocation to the UK would be “left to the second bit” of the first phase of the pension review. 

Reynolds said she was being realistic and was not saying that a majority of the extra investment should go into British assets, but added: “I need more of it than currently comes to come to the UK.”

What does UK pension consolidation mean for the asset management industry? Email me: harriet.agnew@ft.com

Chart of the week

Gold is on track for its worst week in more than three years as Donald Trump’s US election victory and a strong dollar send bullion’s historic rally into reverse, writes Leslie Hook in London.

After jumping more than 35 per cent this year to a series of record highs, bullion prices have tumbled 7 per cent this month to $2570 per troy ounce, including a 3.1 per cent drop on the day following the election.

Trump’s decisive win has reset market expectations as investors weigh the impact of the president-elect’s likely policies. Traders have priced in fewer US interest rate cuts and sent the dollar soaring, fearing that potential tax cuts and tariffs could lead to higher inflation.

Gold, as a non-yielding asset, tends to benefit from lower rates, while a strong dollar, in which bullion is priced, also typically weighs on the metal’s price.

Investors pulled $600mn out of gold-backed exchange traded funds in the week ending November 8, according to data from the World Gold Council, the biggest weekly outflow since May.

Analysts said some of decline was down to speculative money that had jumped into gold’s rally moving on to the next trend.

“There has been an influx of money into bitcoin and into Tesla, the Trump trades, and that is attracting money from typical safe havens like gold,” said Nicky Shiels, head of research at gold refiner MKS Pamp. “It is not a reversal of the bullish trend, gold simply rose too quickly, and now it is reverting to a less bullish trajectory.”

Five unmissable stories this week

Ken Griffin’s hedge fund Citadel has hired Nabeel Bhanji, a long-standing London-based portfolio manager at Elliott Management who worked on some of the activist hedge fund’s most high-profile campaigns.

Neuberger Berman has appointed Khalid Albdah, the former chief executive officer of Goldman Sachs Saudi Arabia, as its head of Middle East, North Africa and new markets.

Donald Trump will amplify American exceptionalism and divergence from Europe, writes Paul Marshall, chair of multi-strategy hedge fund Marshall Wace, in this op-ed. On most dimensions, the policy mix of the incoming president is positive for US equities. 

The New York trading powerhouse Jane Street has quietly invested in Micro Connect, a Hong Kong start-up that generates a wealth of unfiltered data on China’s economy using a new and complex form of financing.

Amundi, Europe’s largest asset manager, has acquired software company aixigo for €149mn to accelerate the deployment of technological solutions to distributors of savings products.

And finally

Imaginary Lines is a delightful new exhibition at the Daniel Katz Gallery in Mayfair that juxtaposes the work of contemporary artists who have participated in the Xenia Artistic Retreat in Hampshire with important Old Master drawings from the collection of Xenia’s founder and patron, Bianca Roden. Curated by Maya Binkin. Until November 22.