Hedge funds are betting that a tumble in shares of UK asset management companies including Abrdn and Ashmore will accelerate as a brutal bear market dents their investment performance and ability to attract new business.
Ken Griffin’s Citadel, Steve Cohen’s Point72 and Marshall Wace are among those running bets on lower share prices for listed so-called long-only firms, whose bias towards rising asset prices puts them at more acute risk from the tumult so far in 2022 in equities and bond markets.
Investment house Abrdn, emerging markets fund group Ashmore and investment platform Hargreaves Lansdown are among listed firms where hedge funds have increased their negative bets this year.
“The bearish environment [has] . . . pushed hedge funds to ramp up big shorts against listed long-only asset managers that are likely to struggle,” said Ivan Ćosović, founder of data group Breakout Point, which analyses short sales.
The bets come during a tough year for global markets as central banks tighten the ultra-loose monetary policy of recent years in an effort to tackle soaring inflation. US equities entered bear market territory this summer, driven by falls in growth stocks, while developed market bonds have weakened sharply.
Fund firms whose products are largely geared to rising rather than falling asset prices are already feeling the pain. Last month Abrdn, whose shares are down 40 per cent this year, posted a first-half loss of £320mn, while in July Ashmore, down 23 per cent this year, reported a $14.3bn fall in assets. Hargreaves Lansdown, which last year enjoyed record trading, has reported a fall in profits and new business flows, while its chief executive has warned of “a tough time over the next few months”.
Shorting fund firms “is essentially a play on US bond yields. If they continue to rise, that lowers [the] valuation of all other assets including equities,” said Florian Kronawitter, a former hedge fund manager who now writes analysis. “Lower equity prices [means] less fee income for asset managers.”
Odey Asset Management, founded by high-profile trader Crispin Odey, is shorting 1.4 per cent of Ashmore. Fund manager James Hanbury wrote in investor documentation seen by the Financial Times that the firm was among several fund firms that were “mispriced cyclical risk”.
Citadel, Wellington Management Company, Eleva Capital and JPMorgan Asset Management are also running bets against Ashmore, according to Breakout Point and regulatory filings. Short interest has risen to 9.1 per cent as of early September from 2.9 per cent this year, according to S&P Global Market Intelligence.
Short interest in Abrdn, meanwhile, has risen from 1.7 per cent at the start of the year to 7.1 per cent, close to its highest level this year, according to S&P Global Market Intelligence. BlackRock, GLG, Point72 and Citadel are among hedge funds running bets against the firm, according to Breakout Point and regulatory filings.
“The earnings power of the business remains highly vulnerable to macro/markets given weak profitability,” wrote Morgan Stanley analyst Bruce Hamilton in a recent note. Analyst expectations for Abrdn are running at close to their lowest on record, according to data group Dystematic and FactSet.
BlackRock and Marshall Wace are among funds targeting Hargreaves Lansdown. That pits them against Nick Train, one of the UK’s best-known stock pickers, whose firm Lindsell Train is the largest outside shareholder in the funds supermarket.
Hargreaves Lansdown shares have plunged 37 per cent so far this year. Some investors attribute part of the fall to the broader market turning against growth stocks. But other analysts see specific issues ahead for the company, which will limit its growth.
“There’s a fairly broad church of people who think that such high growth will be difficult for Hargreaves Lansdown to sustain in future,” said Julian Roberts, analyst at Jefferies.
Short interest, which has been high for some time, has climbed from 8.5 per cent at the start of the year to 10 per cent in early September.
The share price took a turn for the worse after chief executive Chris Hill laid out a new strategy, which will boost investment in the business and cut the amount of capital returned to shareholders.
“Some people thought that was a recognition of past under-investment and that there was a real headwind for the business. That I think has given people confidence to short this thing,” Roberts said.
Longstanding shareholders are unfazed by bets against the company. “We don’t take into account short sellers or not. You’ve got to form your own view and back it,” said Julian Fosh, co-manager of the UK Growth Fund at Liontrust, a top 10 shareholder.
“We see a very strong platform. We see very loyal customers. There’s lots of chit-chat about short-term issues, having to invest a bit more, but nothing to damage their competitive advantage,” he said.