This has been a difficult year for shortselling overall, not to mention the veiled and outspoken barbs that many shortsellers have taken in the past months. In the increasingly bullish markets, betting against a stock has been painful to say the least. Long/short funds have consistently declined in their short positions while outperforming in their long book. Lansdowne Partners, founded by Sir Paul Ruddock, has a heavy sized short book which unlike the others has continued to perform well even when shorts all around have suffered. Ruddock recently talked to Telegraph‘s Kamal Ahmed and defended the role that hedge fund managers have played through their bearish calls.
Sir Paul, who is not looking over the day to day management of Lansdowne anymore, famously shorted Northern Rock in 2007 after staying in the position for over four years. Lansdowne also profitably bet against Barclays plc (NYSE:BCS) (LON:BARC) and other mortgage servicers like, Bradford & Bingley and HBOS, in 2007-09. Since the fund took short positions in many financials before the crisis picked steam, it came under criticism for accelerating the demise of those companies. While speaking to the Telegraph, Sir Paul Ruddock said that shorting stocks helps in finding companies that are over valued and that hedge funds do not create problems in those companies, they only pay attention to the mismanagement. In regards to shortsellers’ contribution to bringing down companies and being on the prowl, Sir Paul said, “Following the ban on the short-selling of financials [during the financial crisis], the stocks went down even more violently. In no way did they [the funds] contribute.”
Paul Ruddock has been watching dangerous trends since 2005
The trend of shorting stocks has waned out if you see statistics. According to Markit, in mid 2008 the ratio between long and short positions was 6.65:1 whereas today for every 14.49 long positions there is a single short position. In absolute value, this means that $4.78 trillion has been bet on longs while only $330 billion is dedicated to shorts.
Anomalies in the British banking industry in 2005: Paul Ruddock
Sir Paul Ruddock also said that hedge fund managers were among the first ones to point out the dangerous course that the banking sector was on. Sir Paul himself started noticing anomalies in the British banking industry in 2005 when their balance sheets raked in high levels of risk and the huge amount of cash led them to place dangerously large bets.
Regarding the ultra low rates fiscal policy, Sir Paul said that with massive deleveraging, recovery is very slow and for that reason interest rates have to be kept low.