Short-sellers raise eyebrows but they have their place
Here’s a reasonable statement: “For markets to work properly and efficiently, all parties need access to accurate information.”
This claim can be found in the ‘About Us’ section of the website of Boatman Capital Research, but the philosophy does not extend to providing information about their own identity.
Boatman Capital, the anonymous short-seller research outfit, appeared out of the blue in October last year with the sole purpose of torpedoing the defence and engineering giant Babcock whose shares slumped 10 per cent in the wake of the attack.
Boatman is untraceable. According to Companies House and the FCA, it doesn’t exist. Its website, which now hosts two incendiary attacks on Babcock plus another targeted at a mining company, is registered in Panama and nobody knows for sure who’s behind it.
In recent weeks, an equally anonymous outfit has cropped up online, claiming to have pieced together enough circumstantial information to unmask Boatman’s crew, but without hard evidence this sleuthing will remain confined to the internet.
This week’s raid on Burford Capital by short-seller Muddy Waters had a dramatic and immediate impact on the London-listed firm, wiping nearly £2bn off its value.
Having taken a short position before releasing its 25-page critique, Muddy Waters looks to be quids in. The only difference between them and Boatman is that they’re not anonymous. Indeed, its founder Carson Block (pictured above) said yesterday his investment strategy has “made my share of enemies”.
Two main issues arise here. Firstly, where is the line between short-selling research and market abuse? And secondly, does he have a point about Burford?
The victim of Block’s research said yesterday that the Muddy Waters strategy is “to alarm investors, depress a company’s stock and profit from the decline”. Indeed so. But the short-sellers only cash in if they convince the market they’ve got a case.
Boatman’s second assault on Babcock barely registered, so for a research note to trigger a massive share price fall it has to hit a nerve. Short-sellers are entitled to conduct (and publicise) their research – just as Burford’s team is entitled to respond as they have done – accusing the report’s authors of “factual inaccuracies and fallacious insinuations”.
Muddy Waters has made the most serious allegations, even invoking Enron as it attacked “a poor business masquerading as a great one”.
Traditional hedge funds can build their short positions with relative stealth and the likes of Muddy Waters who favour a shock and awe approach certainly raise eyebrows, but as the Boatman statement says – it’s about access to information, and we’d all be poorer without that – just as long as it’s accurate.
An unlikely pairing
Brexit and trains: two areas of interest guaranteed to have their fair share of cranks and eccentrics. Of all the strange letters I’m sent, these are the topics that dominate.
When it comes to trains, I’ve received ideas for the reopening of branch lines, designs for new carriages and allegations of conspiracy involving HS2 and mineral rights.
This week, Brexit and trains collided – or at least, some people were determined to bang them together. Rail operators announced that UK lines were pulling out of the Interrail scheme.
This was presented by many, despite assurances to the contrary, as a consequence of Brexit and evidence of the miserable, insular future that awaits us. It wouldn’t have affected Brits’ ability to enjoy the scheme but would have made UK travel harder for Europeans.
The dispute arose after UK rail bosses fell out with Eurail over new Interrail tickets. Still with me?
Anyway, following an online backlash the UK’s Rail Delivery Group have agreed new terms and will stay part of the scheme come what may. Now everyone take a breath.
Main image credit: Getty